Risk/Reward Vol. 150
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"I will always be hoping, hoping/You will always be holding, holding
My hand in your hand/I will understand."---lyrics from "Hope of Deliverance" by Paul McCartney
"There is someone/Watching your footsteps
Turn around/Look at me."---lyrics from "Turn Around, Look at Me" sung by the Vogues
"Trying to convince myself/ I've found one
Making the mistake/I never learned from."---lyrics from "Same Mistake" by Drake
Talk about "hoping, hoping!" Clearly, Mr. Market is "holding, holding" on to the "Hope of a Deliverance", with Dow Jones Industrial Average (DJIA) still hovering near 13,000 and the S&:P remaining above 1400. I don't "understand" this hope in light of continued Congressional gridlock on Fiscal Cliff issues and Secretary Geithner's announcement on Thursday that we will reach the debt ceiling on December 31st. Thus, I remain on the sidelines.
As my loyal readers know, I write this newsletter so that "someone is watching my footsteps" as I try to achieve the goal that I set in 2010 and that I announced in Vol. 1 of Risk/Reward (available at http://www.riskrewardblog.blogsopot.com/ ). At that time I stated as follows:
"I am in search of a 6%, pre tax return. Throughout most of my life, this would have been a layup. From 1969 through 1997, the 10 year Treasuries rarely fell below 6%. From 1980 through 1985, they never fell below 10%. So, at this stage in my life all I need is a little inflation. Indeed, right now 90% of my money is parked, waiting for that to happen. Unfortunately, it looks like we are into a prolonged period of stagflation and perhaps deflation. So, Barb and I decided to get off our duffs, and to become more active money managers."
So, let's "turn around and look at me" to ascertain how I did this year. On the capital that I had available to invest on January 1, 2012 ( I do not count the money that Barb mandates that I keep in cash or the additions that I make throughout the year via pension contributions and/or savings), I made a 6.8% pre-tax return from realized gains and dividends or interest. Not bad, considering I was out of the market all together from mid May through mid July and from mid October through the present (a total of 5 months). If I had kept the portfolio that I sold in May intact through today, I would have seen a 12% pre-tax return for the year. If I had kept the portfolio I sold in October intact through today, I would have seen only a 2.4% pre-tax return for the year even considering the profits I took in May..
Did I "make a mistake" in leaving the market in May? I say no---but in so saying, am I "trying to convince myself" that "I've found one" formula that works--at least for me? Should I have "learned from" the sale in May that I exited too quickly? I do not know the answer to that one. I do know that this year, I was very comfortable with my decisions and that I slept better as a result---and never so well as last night. And so, I continue my quest fully realizing that my learning curve is more like a "long and winding road."
May all of you have a happy, healthy and prosperous NewYear!
P.S. How did you do?
Saturday, December 29, 2012
Saturday, December 22, 2012
December 22, 2012 Chain of Fools
Risk/Reward Vol. 149
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"You lift me up/When I'm on the ground
But as soon as I get up top/You send me tumblin' down
Your love is like a see saw."---lyrics from "See Saw" as sung by Aretha Franklin
"I can see clearly now/The rain is gone
I can see all obstacles in my way
It's gonna be a bright, bright sun shiny day"---lyrics from "I Can See Clearly Now" sung by Johnny Nash
"It's crazy to hold on/When you won't open
So now I'm closed for love."---lyrics from "Closed for Love" sung by Ellie Goulding
Again this week, the Fiscal Cliff negotiations (or lack thereof) turned the stock market into a "see saw". Early in the week, news "on the ground" of a possible deal "lifted up" the Dow Jones Industrial Average (DJIA) more than 200 points, only to "send us tumblin' down" Wednesday on news that the House Republicans were opting for Plan B, a measure the President would not accept. Thursday's modest gains were eliminated on Friday with news that Speaker Boehner had lost control of his caucus and that even the modest tax increases in Plan B were unacceptable to the House. The DJIA closed up 55 points for the week, but was directionally negative.
That said, come the New Year, we SHOULD "see clearly." The "rain SHOULD be gone", and we SHOULD "see all obstacles in our way." The clarity of just knowing the consequences--1) of a deal or 2) of no deal and a leap over the Cliff-- SHOULD bring "a bright, bright sun shiny day." And once again I SHOULD be off the sidelines and in the market, enjoying a decent return. Unless of course, our collective pain is extended by a minor and temporary legislative kick-of-the-can as suggested by the President after Friday's close. Thus, my use of SHOULD.
As indicated previously, my re-entry, when it occurs, will include a heavy dose of closed end funds (CEF's). My "love for closed" end funds comes after much study and investment therein over the past two years . Like their cousins mutual funds and exchange traded funds (ETF's), CEF's offer instant diversification. As a consequence, I will not go "crazy trying to hold on" to or to track individual stocks. A CEF is created via an intial public offering of a set number of shares. The proceeds from the offering are invested by fund sponsors (e.g. BlackRock, Nuveen, Legg Mason, etc.) into assets that are consistent with the particular fund's stated purpose (e.g. investment in large cap stocks or corporate bonds or senior loans, etc. ). After the initial offering, the fund is "closed" to further investment and "won't open". Thereafter, the shares of the closed end fund itself are traded on the stock exchange. The price of a CEF share varies from day to day depending on a variety of factors. Unlike its cousins, mutual funds and ETF's, CEF's can trade above or below their net asset value. Most closed end funds are income oriented which makes them very appealing to me-- an inveterate yield hunter. Income is generated from dividends/interest paid by the securities owned by the fund, from capital gains from selling those securities and/or from premiums from selling covered calls. CEFs are particularly attractive in times of low interest rates (like now) because they can employ leverage (borrowed funds) to enhance returns---something that mutual funds and ETF's cannot do. Read more about CEF's at www.CEFConnect.com , an excellent educational and research source. Over the next several editions, I will be discussing my choices in detail. Each of them has an excellent track record, and most hold at least a Bronze rating by Morningstar, a highly regarded financial reporting company, to which I subscribe, that tracks thousands of funds.
Within a few days, we SHOULD be unfettered---like Aretha, released from the "chain, chain, chains" of Fiscal Cliff uncertainty . Having been "treated mean" and been "treated cruel" by the "chain of fools" that populate our government, the unknown SHOULD be known, and fundamentals SHOULD dictate market performance. Please, Washington, if for no reason other than R-E-S-P-E-C-T for your constituents, next week either do a deal or don't. Do not prolong the agony.
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"You lift me up/When I'm on the ground
But as soon as I get up top/You send me tumblin' down
Your love is like a see saw."---lyrics from "See Saw" as sung by Aretha Franklin
"I can see clearly now/The rain is gone
I can see all obstacles in my way
It's gonna be a bright, bright sun shiny day"---lyrics from "I Can See Clearly Now" sung by Johnny Nash
"It's crazy to hold on/When you won't open
So now I'm closed for love."---lyrics from "Closed for Love" sung by Ellie Goulding
Again this week, the Fiscal Cliff negotiations (or lack thereof) turned the stock market into a "see saw". Early in the week, news "on the ground" of a possible deal "lifted up" the Dow Jones Industrial Average (DJIA) more than 200 points, only to "send us tumblin' down" Wednesday on news that the House Republicans were opting for Plan B, a measure the President would not accept. Thursday's modest gains were eliminated on Friday with news that Speaker Boehner had lost control of his caucus and that even the modest tax increases in Plan B were unacceptable to the House. The DJIA closed up 55 points for the week, but was directionally negative.
That said, come the New Year, we SHOULD "see clearly." The "rain SHOULD be gone", and we SHOULD "see all obstacles in our way." The clarity of just knowing the consequences--1) of a deal or 2) of no deal and a leap over the Cliff-- SHOULD bring "a bright, bright sun shiny day." And once again I SHOULD be off the sidelines and in the market, enjoying a decent return. Unless of course, our collective pain is extended by a minor and temporary legislative kick-of-the-can as suggested by the President after Friday's close. Thus, my use of SHOULD.
As indicated previously, my re-entry, when it occurs, will include a heavy dose of closed end funds (CEF's). My "love for closed" end funds comes after much study and investment therein over the past two years . Like their cousins mutual funds and exchange traded funds (ETF's), CEF's offer instant diversification. As a consequence, I will not go "crazy trying to hold on" to or to track individual stocks. A CEF is created via an intial public offering of a set number of shares. The proceeds from the offering are invested by fund sponsors (e.g. BlackRock, Nuveen, Legg Mason, etc.) into assets that are consistent with the particular fund's stated purpose (e.g. investment in large cap stocks or corporate bonds or senior loans, etc. ). After the initial offering, the fund is "closed" to further investment and "won't open". Thereafter, the shares of the closed end fund itself are traded on the stock exchange. The price of a CEF share varies from day to day depending on a variety of factors. Unlike its cousins, mutual funds and ETF's, CEF's can trade above or below their net asset value. Most closed end funds are income oriented which makes them very appealing to me-- an inveterate yield hunter. Income is generated from dividends/interest paid by the securities owned by the fund, from capital gains from selling those securities and/or from premiums from selling covered calls. CEFs are particularly attractive in times of low interest rates (like now) because they can employ leverage (borrowed funds) to enhance returns---something that mutual funds and ETF's cannot do. Read more about CEF's at www.CEFConnect.com , an excellent educational and research source. Over the next several editions, I will be discussing my choices in detail. Each of them has an excellent track record, and most hold at least a Bronze rating by Morningstar, a highly regarded financial reporting company, to which I subscribe, that tracks thousands of funds.
Within a few days, we SHOULD be unfettered---like Aretha, released from the "chain, chain, chains" of Fiscal Cliff uncertainty . Having been "treated mean" and been "treated cruel" by the "chain of fools" that populate our government, the unknown SHOULD be known, and fundamentals SHOULD dictate market performance. Please, Washington, if for no reason other than R-E-S-P-E-C-T for your constituents, next week either do a deal or don't. Do not prolong the agony.
Saturday, December 15, 2012
December 15, 2012 Get Back, Loretta
Risk/Reward Vol. 148
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"Baby, I'm a man/And maybe I'm a lonely man"
Who's in the middle of something/That he really doesn't understand."---lyrics from "Maybe I'm Amazed" by Paul McCartney
"It's hard enough to wake up after awhile
And even though I say I'm feeling fine
I'm locked up, loaded down, short a try."---lyrics from "Short a Try" by O.A R.
"Big man, huh?/But just understand Uncle Sam knows the scam
Couldn't fool me long/I got it goin' on
I'm independent."---lyrics from "Independent" by Salt N Pepa
"Baby, I'm amazed!" On Monday and Tuesday when the only news story reported by the financial press was disappointment in the Fiscal Cliff negotiations, the Dow Jones Industrual Average (DJIA) advanced 93 points. On Wednesday, when the dominant story was the Federal Reserve's decision to extend quantitative easing (QE4), the type of news that one would expect to drive the DJIA higher, the index fell---and continued to fall through Friday even in the face of encouraging employment numbers. What gives with this? But then, what gives with the DJIA remaining above 13,000 points with no Fiscal Cliff resolution in sight? Clearly, "we're in the middle of something that I don't really understand." "Maybe I'm a lonely man" on the sidelines, but I am a content one.
In another attempt to spur economic growth, the Federal Reserve (Fed), with QE4, has commited to bid upon and to purchase $40billion worth of mortgages and $45billion worth of Treasury bonds EACH MONTH until unemployment (currently at 7.8%) falls below 6.5% or until inflation becomes a concern---whichever occurs first. Achieving that unemployment rate could take a very long time with all of the downward pressure on hiring (e.g. increased taxes, Affordable Care Act obligations, etc.). By printing $85billion of new money each month to pay for this up bidding exercise (see "Picasso Auction" Vol. 113 at www.riskrewardblog.blogspot.com for an explanation of this process) the Federal Reserve's balance sheet will exceed $4trillion by year end 2013. This is astounding considering its balance sheet did not reach $1trillion until September, 2008! QE4's resultant higher bond/mortgage prices and concomitant lower bond/mortgage interest rates (remember, higher asset prices means lower yields/interest) may make us "feel fine" for now, but necessarily we will "wake up after awhile" to find that we are "loaded down" with debt. The eventuality of this realization prompted Ray Dalio, the most successful hedge fund manager in history, to opine on Wednesday that his greatest profit opportunity in the future will come from "short(ing)" Treasury bonds. He is planning to do so come year end 2013 when he predicts that inflation will cause the Fed to stop QE. At that time, according to Dalio, the price of Treasury bonds will plummet. I will buy TBT, PST and/or TBF if and when it's time to short Treasuries. In the "shorter" run, I will be keep my exposure to agency morgage real estate investment trusts (e.g. NLY, AGNC, ARR) low. They simply cannot purchase mortgages profitably with the Fed using $40billion of newly printed money each month to keep mortgage bids high and mortgage interest rates low.
Almost unnoticed in this week's Fiscal Cliff fog was a report from the U.S. Energy Information Administration that in 2012, the United States will increase its crude oil production by 760,000 barrels/day (the largest annual increase in history), and that by year end 2013 U.S. crude oil production will exceed 7,000,000 barrels/day (the highest production since 1992). 'Uncle Sam knows the scam" that OPEC has visited upon us over the years, and should want to escape it. Thanks to cheap natural gas and crude oil from advancments in technology (fracking), we can become the economic "Big Man" again if regulations do not impede us. Until new pipelines are in place, which should allow us to really "get it goin' on", there will be supply and pricing inequities that may depress the stock of some domestic producers temporarily. But ultimately these plays will be big winners---and the U.S. should be energy "independent". ETF's and CEF's that play in this space are high on my re-entry list.
The DJIA remains surprisingly (to me) buoyant, dropping only 20 points this week. I continue to believe that the stock market will experience downward pressure until more clarity on the Fiscal Cliff is achieved. Whether that clarity is provided by a negotiated resolution or a plunge into the abyss, the time for clarity is fast approaching. Once clarity--good or bad---is achieved, I will reenter. Then, Loretta, in the words of Sir Paul, I will "get back to where I once belonged.
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"Baby, I'm a man/And maybe I'm a lonely man"
Who's in the middle of something/That he really doesn't understand."---lyrics from "Maybe I'm Amazed" by Paul McCartney
"It's hard enough to wake up after awhile
And even though I say I'm feeling fine
I'm locked up, loaded down, short a try."---lyrics from "Short a Try" by O.A R.
"Big man, huh?/But just understand Uncle Sam knows the scam
Couldn't fool me long/I got it goin' on
I'm independent."---lyrics from "Independent" by Salt N Pepa
"Baby, I'm amazed!" On Monday and Tuesday when the only news story reported by the financial press was disappointment in the Fiscal Cliff negotiations, the Dow Jones Industrual Average (DJIA) advanced 93 points. On Wednesday, when the dominant story was the Federal Reserve's decision to extend quantitative easing (QE4), the type of news that one would expect to drive the DJIA higher, the index fell---and continued to fall through Friday even in the face of encouraging employment numbers. What gives with this? But then, what gives with the DJIA remaining above 13,000 points with no Fiscal Cliff resolution in sight? Clearly, "we're in the middle of something that I don't really understand." "Maybe I'm a lonely man" on the sidelines, but I am a content one.
In another attempt to spur economic growth, the Federal Reserve (Fed), with QE4, has commited to bid upon and to purchase $40billion worth of mortgages and $45billion worth of Treasury bonds EACH MONTH until unemployment (currently at 7.8%) falls below 6.5% or until inflation becomes a concern---whichever occurs first. Achieving that unemployment rate could take a very long time with all of the downward pressure on hiring (e.g. increased taxes, Affordable Care Act obligations, etc.). By printing $85billion of new money each month to pay for this up bidding exercise (see "Picasso Auction" Vol. 113 at www.riskrewardblog.blogspot.com for an explanation of this process) the Federal Reserve's balance sheet will exceed $4trillion by year end 2013. This is astounding considering its balance sheet did not reach $1trillion until September, 2008! QE4's resultant higher bond/mortgage prices and concomitant lower bond/mortgage interest rates (remember, higher asset prices means lower yields/interest) may make us "feel fine" for now, but necessarily we will "wake up after awhile" to find that we are "loaded down" with debt. The eventuality of this realization prompted Ray Dalio, the most successful hedge fund manager in history, to opine on Wednesday that his greatest profit opportunity in the future will come from "short(ing)" Treasury bonds. He is planning to do so come year end 2013 when he predicts that inflation will cause the Fed to stop QE. At that time, according to Dalio, the price of Treasury bonds will plummet. I will buy TBT, PST and/or TBF if and when it's time to short Treasuries. In the "shorter" run, I will be keep my exposure to agency morgage real estate investment trusts (e.g. NLY, AGNC, ARR) low. They simply cannot purchase mortgages profitably with the Fed using $40billion of newly printed money each month to keep mortgage bids high and mortgage interest rates low.
Almost unnoticed in this week's Fiscal Cliff fog was a report from the U.S. Energy Information Administration that in 2012, the United States will increase its crude oil production by 760,000 barrels/day (the largest annual increase in history), and that by year end 2013 U.S. crude oil production will exceed 7,000,000 barrels/day (the highest production since 1992). 'Uncle Sam knows the scam" that OPEC has visited upon us over the years, and should want to escape it. Thanks to cheap natural gas and crude oil from advancments in technology (fracking), we can become the economic "Big Man" again if regulations do not impede us. Until new pipelines are in place, which should allow us to really "get it goin' on", there will be supply and pricing inequities that may depress the stock of some domestic producers temporarily. But ultimately these plays will be big winners---and the U.S. should be energy "independent". ETF's and CEF's that play in this space are high on my re-entry list.
The DJIA remains surprisingly (to me) buoyant, dropping only 20 points this week. I continue to believe that the stock market will experience downward pressure until more clarity on the Fiscal Cliff is achieved. Whether that clarity is provided by a negotiated resolution or a plunge into the abyss, the time for clarity is fast approaching. Once clarity--good or bad---is achieved, I will reenter. Then, Loretta, in the words of Sir Paul, I will "get back to where I once belonged.
Saturday, December 8, 2012
December 8, 2012 Who Knew
Risk/Reward Vol. 147
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"Don't ask me why/No more questions
Just accept it for the way it is"---lyrics from "Words" by Pink
"He got that super bass/Boom da boom boom
Boom da boom boom bass
Yeah that's that super bass"---lyrics from "Super Bass" by Nicki Minaj
"It's a pain in my gas/It's killin' me so fast
All my hard earned money just thrown away
Blame Bin Laden or Sudan, Iraq or Iran"---lyrics from "Pain in the Gas" sung by Billy Ray Cyrus
This week Mr. Market showed significant support for the President. On Wednesday, within minutes of the President's comments that the Fiscal Cliff could be resolved in one week if the Republicans accepted that the upper two tax brackets will be increased, the Dow Jones Industrial Average (DJIA) went from negative to positive, ending the day up 86 points. There were "no more questions" regarding this claim. "Don't ask me why." Mr. Market "just accepted it for the way it is." Indeed, thereafter stocks moved steadily upward aided by a favorable employment report on Friday. The DJIA is now only 2.5 % below where I exited in October.
This week Goldman Sachs opined that, contrary to what others have said, the "super" cycle in "bass (base)" metals will continue. For those unfamiliar with the "supercycle", much of the three year "boom da boom" experienced by emerging markets has been driven by demand (primarily from China) for base metals (e.g. copper, zinc, iron ore) mined in emerging market countries (e.g. Chile, Brazil, Australia, etc.). With the political change in China complete and a commitment from the new regime to promote development, Goldman Sachs believes that the "boom da boom" in "bass" metals will experience a renaissance. Goldman's statement notwithstanding, one of world's major copper miners, Freeport-McMoRan (FCX) took a different tack this week by making two large acquisitions (PXP and MMR) in the natural gas exploration and transportation sector. The stock market punished FCX for uncoupling from copper, but its foray into natural gas may make sense for the reason set forth below.
Mid-week, the Department of Energy (DOE) issued a report that advocates an expansion of natural gas exports. As loyal readers know, thanks to hydraulic fracturing ("fracking") and horizontal drilling, the United States has gone from being an importer of natural gas at $12/mmBTU in 2008 ("a pain in my gas") to being bloated with it. Indeed, natural gas traded below $2/mmBTU earlier this year before production was curtailed. Energy independence could be ours at last if we support natural gas usage in service vehicles and semis and if regulation doesn't "kill it so fast.". If we don't achieve energy independence, don't "Blame Bin Laden or Sudan, Iraq or Iran." Blame ourselves. Despite a surplusage of natural gas, heretofore only one company, Cheniere Energy (LNG), has been granted permission by the DOE to construct a natural gas exporting facility. This week's report should benefit other companies interested in exporting this abundant resource, most notably Dominion Resources (D).
Gauged by the market's recent move upward, I may be the last person who believes that plunging over the Fiscal Cliff is still a possibility---and/or that a plunge will result in a significant market drop. But recall, if you will, a mere 16 months ago. Mr. Market believed that the Debt Ceiling crisis would be resolved before the August 2, 2011 default date and that a debt downgrade would be avoided. It was not worth the risk to me, so on July 29, 2011 I liquidated when the DJIA was at 12,240. (See Vol 78 www.riskrewardblog.blogspot.com). Washington played brinksmanship over the succeeding few days and a week or so after my liquidation, the DJIA closed at 10,2019---a 12% drop from my exit point. Lest we forget, this is the same President and the same Congress that caused that fiasco. Consequently, I am biding my time---on the sidelines. I know what I want to buy and am eager to do so, but I am in cash until a Cliff resolution is reached.
Please, Washington, listen to Pink, and:
"Get this party started."
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"Don't ask me why/No more questions
Just accept it for the way it is"---lyrics from "Words" by Pink
"He got that super bass/Boom da boom boom
Boom da boom boom bass
Yeah that's that super bass"---lyrics from "Super Bass" by Nicki Minaj
"It's a pain in my gas/It's killin' me so fast
All my hard earned money just thrown away
Blame Bin Laden or Sudan, Iraq or Iran"---lyrics from "Pain in the Gas" sung by Billy Ray Cyrus
This week Mr. Market showed significant support for the President. On Wednesday, within minutes of the President's comments that the Fiscal Cliff could be resolved in one week if the Republicans accepted that the upper two tax brackets will be increased, the Dow Jones Industrial Average (DJIA) went from negative to positive, ending the day up 86 points. There were "no more questions" regarding this claim. "Don't ask me why." Mr. Market "just accepted it for the way it is." Indeed, thereafter stocks moved steadily upward aided by a favorable employment report on Friday. The DJIA is now only 2.5 % below where I exited in October.
This week Goldman Sachs opined that, contrary to what others have said, the "super" cycle in "bass (base)" metals will continue. For those unfamiliar with the "supercycle", much of the three year "boom da boom" experienced by emerging markets has been driven by demand (primarily from China) for base metals (e.g. copper, zinc, iron ore) mined in emerging market countries (e.g. Chile, Brazil, Australia, etc.). With the political change in China complete and a commitment from the new regime to promote development, Goldman Sachs believes that the "boom da boom" in "bass" metals will experience a renaissance. Goldman's statement notwithstanding, one of world's major copper miners, Freeport-McMoRan (FCX) took a different tack this week by making two large acquisitions (PXP and MMR) in the natural gas exploration and transportation sector. The stock market punished FCX for uncoupling from copper, but its foray into natural gas may make sense for the reason set forth below.
Mid-week, the Department of Energy (DOE) issued a report that advocates an expansion of natural gas exports. As loyal readers know, thanks to hydraulic fracturing ("fracking") and horizontal drilling, the United States has gone from being an importer of natural gas at $12/mmBTU in 2008 ("a pain in my gas") to being bloated with it. Indeed, natural gas traded below $2/mmBTU earlier this year before production was curtailed. Energy independence could be ours at last if we support natural gas usage in service vehicles and semis and if regulation doesn't "kill it so fast.". If we don't achieve energy independence, don't "Blame Bin Laden or Sudan, Iraq or Iran." Blame ourselves. Despite a surplusage of natural gas, heretofore only one company, Cheniere Energy (LNG), has been granted permission by the DOE to construct a natural gas exporting facility. This week's report should benefit other companies interested in exporting this abundant resource, most notably Dominion Resources (D).
Gauged by the market's recent move upward, I may be the last person who believes that plunging over the Fiscal Cliff is still a possibility---and/or that a plunge will result in a significant market drop. But recall, if you will, a mere 16 months ago. Mr. Market believed that the Debt Ceiling crisis would be resolved before the August 2, 2011 default date and that a debt downgrade would be avoided. It was not worth the risk to me, so on July 29, 2011 I liquidated when the DJIA was at 12,240. (See Vol 78 www.riskrewardblog.blogspot.com). Washington played brinksmanship over the succeeding few days and a week or so after my liquidation, the DJIA closed at 10,2019---a 12% drop from my exit point. Lest we forget, this is the same President and the same Congress that caused that fiasco. Consequently, I am biding my time---on the sidelines. I know what I want to buy and am eager to do so, but I am in cash until a Cliff resolution is reached.
Please, Washington, listen to Pink, and:
"Get this party started."
Saturday, December 1, 2012
December 1, 2012 Hostage
Risk/Reward Vol. 146
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"It's quarter to three
There's no one in the place except you and me
So set 'em up Joe
I got a little story you oughta know."---lyrics from "One for My Baby" sung by Frank Sinatra
"I can change your life, make it so new
Make you never want to go back to the old you
Ciroc and lime, give it a lil' time
And she gonna transform like Optimus Prime"---lyrics from "I Can Transform Ya" by Chris Brown
"Can you guess my name?/And can you guess my trade
Well, I won't rest before the world is made
Arm in arm the angels fly/Keep me falling from the sky
Steel Monkey"---lyrics from "Steel Monkey" by Jethro Tull
The stock market is a hostage of the Fiscal Cliff rumor mill. This week's stock chart tells a "little story you oughta know". At noon on Tuesday, the market was trading in positive territory, "set up" by good housing and consumer confidence news---the type of information that should drive market action. Two hours later, Senator Harry Reid held a press conference where he stated little if any progress had been made in resolving the Fiscal Cliff. By "quarter to three"(EST), the market had dropped over 60 points and ended the day down 86. The next day the market continued downward until President Obama stated that prospects looked good for a resolution. The stock market rose on the news and continued generally upward until Friday when Speaker Boehner flattened it by stating that Fiscal Cliff discussions were going nowhere. Honestly, when it comes to D.C. its seems "there is no one in the place" who is looking out for "you and me".
The Dow Jones Industrial Average ended the week up 16 points. But, I remain on the sidelines. I have read nothing that makes me believe that either side is ready to compromise on Cliff issues. The President has stated that an increase in the top two tax brackets is a sine qua non of any resolution. He has remained steadfast on this point for more than a year. I don't see him relenting. Politically it would be foolish for him to do so. Keep in mind that Barack Obama sees himself as a "transformative" President. With Democrats controlling both houses of Congress during his first two years in office, he was a veritable "Optimus", passage of the Obamacare being a "Prime" example. "Give it a lil' time" and you will see how Obamacare has "changed your life." Going forward, he will not be satisfied unless and until he transforms how wealth is distributed in this country. But, as the past two years have shown, he can do nothing with a Republican controlled House. So how best to rid himself of those pests? Either make them abandon their "no tax increase" pledge and thereby incur the wrath of their Tea Party base or have them commit political suicide by holding fast to that pledge and vaulting the country over the Cliff for the sake of the wealthy that populate the upper two tax brackets. The President wins and the Republicans lose---either way. As I said, prospects for compromise don't look promising.
When I do reenter, I won't be a "Steel Money". World steel production capacity is currently 1.8 trillion tons with 350 million tons of additional capacity coming on line in 2013. Worldwide consumption is only 1.5 trillion tons, 46% of which is consumed by China which naturally has a preference for using domestically produced steel. Steel production overcapacity was highlighted this week as France threatened to nationalize one of Arcelor Mittal's French steel mills scheduled to be closed as redundant. Seeing itself as an "angel", the French government does not want employment to "keep falling", even if steel prices do.
Despite my recent dire predictions, the stock market has remained remarkably steady; now down only 3.6% from when I exited in October. I may have overreacted, and frankly nothing would please me more should that be the case. I would have preserved my desired profit level for the year and lost only one quarter's dividends in return for sleeping well for three months. To me that would be a satisfactory result. That said, I continue to believe that we stand a 50/50 chance that our lame duck Congress will send us over the Fiscal Cliff and into unchartered waters. Should that occur, the market will surely plummet, but I will be kept afloat by my cash position. If the worst occurs, I will not be grasping for air through some "Aqualung", "feeling like a dead duck, spitting out pieces of broken luck." (Jethro Tull)
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"It's quarter to three
There's no one in the place except you and me
So set 'em up Joe
I got a little story you oughta know."---lyrics from "One for My Baby" sung by Frank Sinatra
"I can change your life, make it so new
Make you never want to go back to the old you
Ciroc and lime, give it a lil' time
And she gonna transform like Optimus Prime"---lyrics from "I Can Transform Ya" by Chris Brown
"Can you guess my name?/And can you guess my trade
Well, I won't rest before the world is made
Arm in arm the angels fly/Keep me falling from the sky
Steel Monkey"---lyrics from "Steel Monkey" by Jethro Tull
The stock market is a hostage of the Fiscal Cliff rumor mill. This week's stock chart tells a "little story you oughta know". At noon on Tuesday, the market was trading in positive territory, "set up" by good housing and consumer confidence news---the type of information that should drive market action. Two hours later, Senator Harry Reid held a press conference where he stated little if any progress had been made in resolving the Fiscal Cliff. By "quarter to three"(EST), the market had dropped over 60 points and ended the day down 86. The next day the market continued downward until President Obama stated that prospects looked good for a resolution. The stock market rose on the news and continued generally upward until Friday when Speaker Boehner flattened it by stating that Fiscal Cliff discussions were going nowhere. Honestly, when it comes to D.C. its seems "there is no one in the place" who is looking out for "you and me".
The Dow Jones Industrial Average ended the week up 16 points. But, I remain on the sidelines. I have read nothing that makes me believe that either side is ready to compromise on Cliff issues. The President has stated that an increase in the top two tax brackets is a sine qua non of any resolution. He has remained steadfast on this point for more than a year. I don't see him relenting. Politically it would be foolish for him to do so. Keep in mind that Barack Obama sees himself as a "transformative" President. With Democrats controlling both houses of Congress during his first two years in office, he was a veritable "Optimus", passage of the Obamacare being a "Prime" example. "Give it a lil' time" and you will see how Obamacare has "changed your life." Going forward, he will not be satisfied unless and until he transforms how wealth is distributed in this country. But, as the past two years have shown, he can do nothing with a Republican controlled House. So how best to rid himself of those pests? Either make them abandon their "no tax increase" pledge and thereby incur the wrath of their Tea Party base or have them commit political suicide by holding fast to that pledge and vaulting the country over the Cliff for the sake of the wealthy that populate the upper two tax brackets. The President wins and the Republicans lose---either way. As I said, prospects for compromise don't look promising.
When I do reenter, I won't be a "Steel Money". World steel production capacity is currently 1.8 trillion tons with 350 million tons of additional capacity coming on line in 2013. Worldwide consumption is only 1.5 trillion tons, 46% of which is consumed by China which naturally has a preference for using domestically produced steel. Steel production overcapacity was highlighted this week as France threatened to nationalize one of Arcelor Mittal's French steel mills scheduled to be closed as redundant. Seeing itself as an "angel", the French government does not want employment to "keep falling", even if steel prices do.
Despite my recent dire predictions, the stock market has remained remarkably steady; now down only 3.6% from when I exited in October. I may have overreacted, and frankly nothing would please me more should that be the case. I would have preserved my desired profit level for the year and lost only one quarter's dividends in return for sleeping well for three months. To me that would be a satisfactory result. That said, I continue to believe that we stand a 50/50 chance that our lame duck Congress will send us over the Fiscal Cliff and into unchartered waters. Should that occur, the market will surely plummet, but I will be kept afloat by my cash position. If the worst occurs, I will not be grasping for air through some "Aqualung", "feeling like a dead duck, spitting out pieces of broken luck." (Jethro Tull)
Saturday, November 24, 2012
November 24, 2012 Safety in Numbers
Risk/Reward Vol. 145
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"Remember all the things we wanted/Now all our memories, they're haunted
We were always meant to say goodbye/Even with our fists held high
But I want you to move on/So I 'm already gone."---lyrics from "Already Gone" by Kelly Clarkson
"No deposit/No return
Boy, if you wanna real love/You got a lot to learn"---lyrics from "No Deposit No Return" sung by Sheena Easton
"There is safety in numbers/In numbers my friend
You'll find me well protected/When you come around again"---lyrics from "Safety in Numbers" by Joan Osborne
The Dow Jones Industrial Average (DJIA) spiked 421 points this week even though Fiscal Cliff concerns have not "moved on." Democrats and Republicans still have "their fists held high," and neither party has achieved any of "the things they wanted." So why did the market skyrocket? Because by Monday, all of the politicos were "already gone" from Washington---the President overseas and Congress on Thanksgiving Week break. No news on the Fiscal Cliff was indeed good news for investors. We will see what happens next week when Congress reconvenes with only a month left in which to reach a deal. My "memories" of the previous month are "haunted" by volatility--up on rumors of a compromise, down on rumors of a fissure.
To me, the most important news this week came from Fed Chairman Ben Bernanke who stated on Tuesday that the Fed's commitment to low interest rates will continue until employment improves. This guarantees that meager returns on safe investments will persist. Simply put, the Fed has no "real love" for conservative investors. Ponder these facts: 1) in 2007 the average yield on an investment grade corporate bond was 5.7%, today it is 2.67% : 2) in 2008 a five year certificate of deposit yielded 4%, today it yields 1.3%. And yet, because of fearful events such as the Fiscal Cliff, money continues to pour out of equities and into bonds. "No (certificates of) deposit" for yield hunters like me, because "no return" is available. Today, folks like me are forced to be risk takers or traders or both---and in these areas I "got a lot to learn."
One thing I have learned is that there is "safety in numbers, in numbers my friend." Allow me to elaborate. You may recall from earlier posts that I purchased stock in HiCrush Partners (HCLP), an entitiy that owns an income share in Wisconsin fracking sand mines. I liked its 8+% yield and the fact that it had hedged any downside in fracking sand pricing by signing several "take or pay" contracts with large oil service companies like Baker Hughes. On November 13, 2012 (after I sold for other reasons, thank goodness), HCLP announced that Baker Hughes had cancelled its contract, a fact that caused the stock to drop nearly 30% in one day. Who needs that! I still want exposure to fracking sand in general and to HCLP in particular, but next time I will buy it as part of an exchange traded fund (ETF) or closed end fund (CEF) where I will "be well protected" by the fact that HCLP will be one of several similar holdings in the fund. And this was not my first lesson in the concept of "safety in numbers". Back on April 19, 2010, Barb owned BP stock that traded at $60. On that day, BP was viewed as one of the best companies in the world with a huge balance sheet and an excellent dividend. One day later, because of the Deepwater Horizon disaster, BP was considered one of the worst corporate citizens in history, and its stock fell each day thereafter until June 20, 2010 when it hit $27. That fall would have been much more palatable if cushioned by an uptick in the stock of its competitors also housed in an oil ETF or CEF.
Although the DJIA has recovered nearly half of what it lost since my October exit, I remain on the sidelines. Until the Fiscal Cliff is resolved, I foresee more down than up days. However, when I do re-enter, I will seek safety in the diversity readily available in ETF's and CEF's. Yes, I have learned "a lot" from HCLP, BP and Kelly Clarkson---"Because of you, I learned to play on the safe side, so I don't get hurt.."
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"Remember all the things we wanted/Now all our memories, they're haunted
We were always meant to say goodbye/Even with our fists held high
But I want you to move on/So I 'm already gone."---lyrics from "Already Gone" by Kelly Clarkson
"No deposit/No return
Boy, if you wanna real love/You got a lot to learn"---lyrics from "No Deposit No Return" sung by Sheena Easton
"There is safety in numbers/In numbers my friend
You'll find me well protected/When you come around again"---lyrics from "Safety in Numbers" by Joan Osborne
The Dow Jones Industrial Average (DJIA) spiked 421 points this week even though Fiscal Cliff concerns have not "moved on." Democrats and Republicans still have "their fists held high," and neither party has achieved any of "the things they wanted." So why did the market skyrocket? Because by Monday, all of the politicos were "already gone" from Washington---the President overseas and Congress on Thanksgiving Week break. No news on the Fiscal Cliff was indeed good news for investors. We will see what happens next week when Congress reconvenes with only a month left in which to reach a deal. My "memories" of the previous month are "haunted" by volatility--up on rumors of a compromise, down on rumors of a fissure.
To me, the most important news this week came from Fed Chairman Ben Bernanke who stated on Tuesday that the Fed's commitment to low interest rates will continue until employment improves. This guarantees that meager returns on safe investments will persist. Simply put, the Fed has no "real love" for conservative investors. Ponder these facts: 1) in 2007 the average yield on an investment grade corporate bond was 5.7%, today it is 2.67% : 2) in 2008 a five year certificate of deposit yielded 4%, today it yields 1.3%. And yet, because of fearful events such as the Fiscal Cliff, money continues to pour out of equities and into bonds. "No (certificates of) deposit" for yield hunters like me, because "no return" is available. Today, folks like me are forced to be risk takers or traders or both---and in these areas I "got a lot to learn."
One thing I have learned is that there is "safety in numbers, in numbers my friend." Allow me to elaborate. You may recall from earlier posts that I purchased stock in HiCrush Partners (HCLP), an entitiy that owns an income share in Wisconsin fracking sand mines. I liked its 8+% yield and the fact that it had hedged any downside in fracking sand pricing by signing several "take or pay" contracts with large oil service companies like Baker Hughes. On November 13, 2012 (after I sold for other reasons, thank goodness), HCLP announced that Baker Hughes had cancelled its contract, a fact that caused the stock to drop nearly 30% in one day. Who needs that! I still want exposure to fracking sand in general and to HCLP in particular, but next time I will buy it as part of an exchange traded fund (ETF) or closed end fund (CEF) where I will "be well protected" by the fact that HCLP will be one of several similar holdings in the fund. And this was not my first lesson in the concept of "safety in numbers". Back on April 19, 2010, Barb owned BP stock that traded at $60. On that day, BP was viewed as one of the best companies in the world with a huge balance sheet and an excellent dividend. One day later, because of the Deepwater Horizon disaster, BP was considered one of the worst corporate citizens in history, and its stock fell each day thereafter until June 20, 2010 when it hit $27. That fall would have been much more palatable if cushioned by an uptick in the stock of its competitors also housed in an oil ETF or CEF.
Although the DJIA has recovered nearly half of what it lost since my October exit, I remain on the sidelines. Until the Fiscal Cliff is resolved, I foresee more down than up days. However, when I do re-enter, I will seek safety in the diversity readily available in ETF's and CEF's. Yes, I have learned "a lot" from HCLP, BP and Kelly Clarkson---"Because of you, I learned to play on the safe side, so I don't get hurt.."
Saturday, November 17, 2012
November 17, 2012 R.E.M.
Risk/Reward Vol. 144
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"Uncertainty is killing me/And I'm certainly not asleep
Maybe I've gone far too deep/Maybe I'm just far too weak"---lyrics from "Uncertainty" by The Fray
"It can happen too fast/Or a little too late
Timing is everything"---lyrics from "Timing is Everything" by Trace Adkins
"Consider this/The hint of the century
Consider this/The slip that brought me to my knees"---lyrics from "Losing My Religion" by R.E.M.
Notwithstanding the market's rise Friday following the Kumbaya moment at the White House between Republicans and Democrats, the Dow Jones Industrial Average (DJIA) lost 227 points this week and has fallen 7% since I began to exit October 1st. My portfolio, had I remained, would have suffered a similar percentage drop. The primary cause is the "Uncertainty" as to how or even if the Fiscal Cliff will be resolved. What our politicians do not appreciate is how much the stock market abhors uncertainty. "Uncertainty is killing me" and is causing other investors "certainly not to sleep." Moreover, prolonged uncertainty morphs into a lack of confidence, and when investors lack confidence they leave the market. Obviously, many have joined me on the sidelines. Once there, the doubts become "far too deep" for most to return quickly. Returning when others are "far too weak" can result in outstanding profits.
The above paragraph is a prime example of market timing. Most investing savants will tell you that no one can time the market. They say market timing "can happen too fast/or a little too late"---but rarely satisfactorily. Yet these same gurus (e.g. Graham and Buffett) preach that the first rule of investing is "Don't lose money" and the second rule is "Don't forget the first rule." How pray tell could one have avoided losing money over the past six weeks without selling? And how can one "buy low" if one has not raised cash? Thousands of pages have been written on when to buy stock; little has been written on when to sell.
"Consider this." As I wrote at the time, I sold in October because I anticipated that no matter who was elected President, a battle over the resolution of the Fiscal Cliff would ensue during this lame duck session and perhaps beyond. The most recent analogous circumstance, the July-August, 2011 debt ceiling crisis (brought about by this VERY SAME Congress and this VERY SAME President) resulted in a 16% drop in the DJIA recovery from which took months. Here we are, far from a resolution of the current crisis and already down 7%. What I did and what I wrote was not "the hint of the century"; it was common sense. Having attained my investment objective for the year, what was my downside? Paying some capital gains tax and foregoing one quarter's dividends--that's it. Yet, I am unaware of any market guru advocating that one should preserve one's gains by going all (or even overweight) cash---despite a clear warning from the Congressional Budget Office that failure to reach a resolution on the Fiscal Budget will result in a second dip into recession.
Can't time the market, they say. Undoubtedly they are correct, but right know believing that "timing is everything" is very comforting to me "Consider this." If you had purchased an S&P Index fund (which many gurus recommend as one's primary investment) any time between October, 2006 and January, 2008, you would STILL be in a loss position on your principal today---more than six years later, even after a triple digit gain from 2009 to 2012. That kind of investing would have "brought me to my knees". Lady Barbara would be forced to introduce me thus: "That's him in the corner/That's him in the spotlight/Losing his religion."
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"Uncertainty is killing me/And I'm certainly not asleep
Maybe I've gone far too deep/Maybe I'm just far too weak"---lyrics from "Uncertainty" by The Fray
"It can happen too fast/Or a little too late
Timing is everything"---lyrics from "Timing is Everything" by Trace Adkins
"Consider this/The hint of the century
Consider this/The slip that brought me to my knees"---lyrics from "Losing My Religion" by R.E.M.
Notwithstanding the market's rise Friday following the Kumbaya moment at the White House between Republicans and Democrats, the Dow Jones Industrial Average (DJIA) lost 227 points this week and has fallen 7% since I began to exit October 1st. My portfolio, had I remained, would have suffered a similar percentage drop. The primary cause is the "Uncertainty" as to how or even if the Fiscal Cliff will be resolved. What our politicians do not appreciate is how much the stock market abhors uncertainty. "Uncertainty is killing me" and is causing other investors "certainly not to sleep." Moreover, prolonged uncertainty morphs into a lack of confidence, and when investors lack confidence they leave the market. Obviously, many have joined me on the sidelines. Once there, the doubts become "far too deep" for most to return quickly. Returning when others are "far too weak" can result in outstanding profits.
The above paragraph is a prime example of market timing. Most investing savants will tell you that no one can time the market. They say market timing "can happen too fast/or a little too late"---but rarely satisfactorily. Yet these same gurus (e.g. Graham and Buffett) preach that the first rule of investing is "Don't lose money" and the second rule is "Don't forget the first rule." How pray tell could one have avoided losing money over the past six weeks without selling? And how can one "buy low" if one has not raised cash? Thousands of pages have been written on when to buy stock; little has been written on when to sell.
"Consider this." As I wrote at the time, I sold in October because I anticipated that no matter who was elected President, a battle over the resolution of the Fiscal Cliff would ensue during this lame duck session and perhaps beyond. The most recent analogous circumstance, the July-August, 2011 debt ceiling crisis (brought about by this VERY SAME Congress and this VERY SAME President) resulted in a 16% drop in the DJIA recovery from which took months. Here we are, far from a resolution of the current crisis and already down 7%. What I did and what I wrote was not "the hint of the century"; it was common sense. Having attained my investment objective for the year, what was my downside? Paying some capital gains tax and foregoing one quarter's dividends--that's it. Yet, I am unaware of any market guru advocating that one should preserve one's gains by going all (or even overweight) cash---despite a clear warning from the Congressional Budget Office that failure to reach a resolution on the Fiscal Budget will result in a second dip into recession.
Can't time the market, they say. Undoubtedly they are correct, but right know believing that "timing is everything" is very comforting to me "Consider this." If you had purchased an S&P Index fund (which many gurus recommend as one's primary investment) any time between October, 2006 and January, 2008, you would STILL be in a loss position on your principal today---more than six years later, even after a triple digit gain from 2009 to 2012. That kind of investing would have "brought me to my knees". Lady Barbara would be forced to introduce me thus: "That's him in the corner/That's him in the spotlight/Losing his religion."
Saturday, November 10, 2012
November 10, 2012 Sweet Surrender
Risk/Reward Vol. 143
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"I've fallen out of favor/And I've fallen from grace
Fallen out of trees/And I've fallen on my face."---lyrics from "Falling" by Florence and The Machine
"Well, I won't back down/No I won't back down
You could stand me up at the gates of hell/But I won't back down"---lyrics from "I Won't Back Down" by Tom Petty
"'Cause I'd surrender everything/To feel the chance to live again
I reach to you/I know you can feel it too."---lyrics from "I Surrender" sung by Celine Dion
With the election over and the Fiscal Cliff fast approaching, stocks "have fallen out of favor". Even the much vaunted Apple has "fallen out of the tree" losing more than 20% of its value since September. Down 278 points this week, I see the Dow Jones Industrial Average continuing to fall until the Fiscal Cliff (that nasty combination of tax cut expirations and automatic spending sequestrations scheduled to occur at year's end) is resolved. If the Cliff is not averted, the result (according to a Congressional Budget Office report issued on Thursday) will be a recession in 2013 and a rise in unemployment from the current 7.9% to 9.1%; in short, an economy that has "fallen on its face."
So what are the prospects that the Fiscal Cliff will be resolved in the next few days? Based upon public statements, not good. According to ITS leader, Democrat Harry Reid, the Senate will not enact any legislation that DOES NOT raise the taxes of the upper 2% of households; those making $250,000 or more. The President echoed this position yesterday. According to ITS leader, Republican John Boehner, the House of Representatives will not enact any legislation that DOES raise the taxes of those very same households. If each is to be believed, "you can stand them up at the gates of hell/And they won't back down."
Or so each says. The fact is that the Democrats won the election---and won big. They hold all of the cards. What are the Republicans going to do? Cling to their position while the economy goes into recession (which it may do anyway) and unemployment rises, all for the benefit of the upper 2%? Talk about political suicide! I say, get what concessions you can (a 20% dividend rate, please!) and then "surrender everything"else---and do it now. Then you will have "a chance to live again"---at the polls in 2014 once the effects of increased taxes and Obamacare are felt.. Surrender is inevitable once the pain currently felt on Wall Street moves to the board room (likely there already) and then to Main Street. I feel the longer Republicans wait, the more blame they will absorb. And, Mr. Speaker, "I know you feel it too."
After the Republicans surrender, a measure of stability will return to the stock market. At that time I will re-enter, having preserved a decent profit by liquidating my stocks in early October. Yes, Celine, once again I will "touch my dividends like this/And hold them like that" (albeit at a higher tax rate) as they "all come back to me"---then.
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"I've fallen out of favor/And I've fallen from grace
Fallen out of trees/And I've fallen on my face."---lyrics from "Falling" by Florence and The Machine
"Well, I won't back down/No I won't back down
You could stand me up at the gates of hell/But I won't back down"---lyrics from "I Won't Back Down" by Tom Petty
"'Cause I'd surrender everything/To feel the chance to live again
I reach to you/I know you can feel it too."---lyrics from "I Surrender" sung by Celine Dion
With the election over and the Fiscal Cliff fast approaching, stocks "have fallen out of favor". Even the much vaunted Apple has "fallen out of the tree" losing more than 20% of its value since September. Down 278 points this week, I see the Dow Jones Industrial Average continuing to fall until the Fiscal Cliff (that nasty combination of tax cut expirations and automatic spending sequestrations scheduled to occur at year's end) is resolved. If the Cliff is not averted, the result (according to a Congressional Budget Office report issued on Thursday) will be a recession in 2013 and a rise in unemployment from the current 7.9% to 9.1%; in short, an economy that has "fallen on its face."
So what are the prospects that the Fiscal Cliff will be resolved in the next few days? Based upon public statements, not good. According to ITS leader, Democrat Harry Reid, the Senate will not enact any legislation that DOES NOT raise the taxes of the upper 2% of households; those making $250,000 or more. The President echoed this position yesterday. According to ITS leader, Republican John Boehner, the House of Representatives will not enact any legislation that DOES raise the taxes of those very same households. If each is to be believed, "you can stand them up at the gates of hell/And they won't back down."
Or so each says. The fact is that the Democrats won the election---and won big. They hold all of the cards. What are the Republicans going to do? Cling to their position while the economy goes into recession (which it may do anyway) and unemployment rises, all for the benefit of the upper 2%? Talk about political suicide! I say, get what concessions you can (a 20% dividend rate, please!) and then "surrender everything"else---and do it now. Then you will have "a chance to live again"---at the polls in 2014 once the effects of increased taxes and Obamacare are felt.. Surrender is inevitable once the pain currently felt on Wall Street moves to the board room (likely there already) and then to Main Street. I feel the longer Republicans wait, the more blame they will absorb. And, Mr. Speaker, "I know you feel it too."
After the Republicans surrender, a measure of stability will return to the stock market. At that time I will re-enter, having preserved a decent profit by liquidating my stocks in early October. Yes, Celine, once again I will "touch my dividends like this/And hold them like that" (albeit at a higher tax rate) as they "all come back to me"---then.
Saturday, November 3, 2012
November 3, 2013 Barry White
Risk/Reward Vol. 142
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"I know how to make you feel like you wanna feel/But I can't lose what I use
I'm qualified to satisfy you/Anyway you want me to"---lyrics from "I'm Qualified to Satisfy You" by Barry White
"It's no surprise/I won't be here tomorrow
I can't believe that I stayed til today"---lyrics from "No Surprise" by Daughtry
"Wake up, wake up, wake up it's the 1st of the month
To get up, get up, get up so cash your checks and get up"---lyrics from "1st of Tha' Month" by Bone Thugs-N-Harmony
Sitting here on the sidelines, I am amazed at the continued vitality of stocks that pay dividends which "qualify" for a 15% tax rate under the Bush Tax Cuts ("BTC's"). Those dividends are scheduled to be taxed as high as 43.4% once the BTC's expire on January 1, 2013. And yet, as recently as yesterday, Forbes, The Motley Fool and Cramer were all advocating "qualified" dividend paying stocks as "can't lose" investments, ones that will "make you feel like you wanna feel"; not even mentioning this tax issue. The fact is, Dear Readers, that absent some attitude re-adjustment on the part of the current Administration, "qualified" dividend rates cease at year end, no matter who is elected. This could reduce the value of "qualified dividend" paying stocks significantly especially in comparison to higher paying "unqualified" dividend paying stocks such as real estate investment trusts, business development companies and oil trusts which are taxed at marginal rates even now. Frankly, I am surprised that there has not been a significant sell-off of "qualified" dividend payers.
But then again, I am "surprised" that the stock market has not fallen more generally in light of the impending Fiscal Cliff, of which the end of the BTC's is just one component. "I can't believe" that the Dow Jones Industrial Average (DJIA) has "stayed above 13000 through today." The DJIA is only 420 points (3%) below where it is was on October 1, 2013 when I started to sell. I do not regret selling because there is considerably more downside risk than upside potential over the next two months, and this year's gains (which I have already captured) may not be "here tomorrow". Indeed, I believe that the uncertainty surrounding the resolution (or not) of the Fiscal Cliff will result in an additional 10% correction before 2013 dawns. I base this on what occurred in July, 2011 during the debt ceiling stand-off and the resultant downgrade of U. S. debt. I have raised plenty of cash to profit from any such dip. But, dip or not, I do not envision the stock market rising significantly before year end under any circumstance; so the most that I will have lost from liquidating is one quarter's worth of dividends and the timing of some capital gains tax.
As I construct, in the abstract, my post-Fiscal Cliff portfolio, I am emphasizing stocks that pay a monthly dividend. For yield hunters like me, the thought that I could "wake up, wake up, wake up" and "get up, get up, get up" to "cash my checks" on the "1st of every month" is very appealing. These companies clearly are focused on what I value most---steady income to shareholders. A portfolio that yields a stable, 6-7% return (and nothing is more stable than a monthly dividend) is all that I need to support my profligate lifestyle once I reach age 62 (March 23, 2013) should I choose to retire (which, dear law firm Partners, I will NOT do.) Look for a list of my favorite monthly dividend payors in the near future.
I close by announcing the birth yesterday of my fifth grandchild, Ms. Evelyn Jane McClement. She is beautiful, and everyone is doing well. What I value most about financial security is that it affords one the ability to enjoy one's family more fully---and to me, in the words of Barry White, family is "my first, my last, my everything.
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"I know how to make you feel like you wanna feel/But I can't lose what I use
I'm qualified to satisfy you/Anyway you want me to"---lyrics from "I'm Qualified to Satisfy You" by Barry White
"It's no surprise/I won't be here tomorrow
I can't believe that I stayed til today"---lyrics from "No Surprise" by Daughtry
"Wake up, wake up, wake up it's the 1st of the month
To get up, get up, get up so cash your checks and get up"---lyrics from "1st of Tha' Month" by Bone Thugs-N-Harmony
Sitting here on the sidelines, I am amazed at the continued vitality of stocks that pay dividends which "qualify" for a 15% tax rate under the Bush Tax Cuts ("BTC's"). Those dividends are scheduled to be taxed as high as 43.4% once the BTC's expire on January 1, 2013. And yet, as recently as yesterday, Forbes, The Motley Fool and Cramer were all advocating "qualified" dividend paying stocks as "can't lose" investments, ones that will "make you feel like you wanna feel"; not even mentioning this tax issue. The fact is, Dear Readers, that absent some attitude re-adjustment on the part of the current Administration, "qualified" dividend rates cease at year end, no matter who is elected. This could reduce the value of "qualified dividend" paying stocks significantly especially in comparison to higher paying "unqualified" dividend paying stocks such as real estate investment trusts, business development companies and oil trusts which are taxed at marginal rates even now. Frankly, I am surprised that there has not been a significant sell-off of "qualified" dividend payers.
But then again, I am "surprised" that the stock market has not fallen more generally in light of the impending Fiscal Cliff, of which the end of the BTC's is just one component. "I can't believe" that the Dow Jones Industrial Average (DJIA) has "stayed above 13000 through today." The DJIA is only 420 points (3%) below where it is was on October 1, 2013 when I started to sell. I do not regret selling because there is considerably more downside risk than upside potential over the next two months, and this year's gains (which I have already captured) may not be "here tomorrow". Indeed, I believe that the uncertainty surrounding the resolution (or not) of the Fiscal Cliff will result in an additional 10% correction before 2013 dawns. I base this on what occurred in July, 2011 during the debt ceiling stand-off and the resultant downgrade of U. S. debt. I have raised plenty of cash to profit from any such dip. But, dip or not, I do not envision the stock market rising significantly before year end under any circumstance; so the most that I will have lost from liquidating is one quarter's worth of dividends and the timing of some capital gains tax.
As I construct, in the abstract, my post-Fiscal Cliff portfolio, I am emphasizing stocks that pay a monthly dividend. For yield hunters like me, the thought that I could "wake up, wake up, wake up" and "get up, get up, get up" to "cash my checks" on the "1st of every month" is very appealing. These companies clearly are focused on what I value most---steady income to shareholders. A portfolio that yields a stable, 6-7% return (and nothing is more stable than a monthly dividend) is all that I need to support my profligate lifestyle once I reach age 62 (March 23, 2013) should I choose to retire (which, dear law firm Partners, I will NOT do.) Look for a list of my favorite monthly dividend payors in the near future.
I close by announcing the birth yesterday of my fifth grandchild, Ms. Evelyn Jane McClement. She is beautiful, and everyone is doing well. What I value most about financial security is that it affords one the ability to enjoy one's family more fully---and to me, in the words of Barry White, family is "my first, my last, my everything.
Saturday, October 27, 2012
October 27, 2012 Buffett
Risk/Reward Vol. 141
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"To get water from a faucet/You got to turn it
And if you want my love/You got to earn it, earn it, earn it."--lyrics from "You've Got to Earn It" by the Temptations
"So what do I do/With this death wish I have?
With the cliff's edge so near?"---lyrics from "Cliff's Edge" by Patrick Swayze
"And there's history on the juke box/Where the spies and scoundrels dwell
It was the place to go in Bamako/Direction--Buffet Hotel"---lyrics from "Buffet Hotel" by Jimmy Buffett
We are in the midst of the third quarter earnings season. So far, over 60% of the companies reporting have failed to beat expected revenues (although, through cost cutting, 67% have beaten bottom line expectations). The stock market has reacted negatively to the news. The Dow Jones Industrial Average closed down 236 points for the week. If companies want investor's "love" (read, money), they are going to have to "earn it, earn it, earn it." by "turning on a faucet" of financial performance. That did not happen in Q3, and the guidance that companies are giving for Q4 does not portend for the better.
Of course, the reasons why any given company has not performed above expectations are unique, but one common theme is the deleterious impact of the Fiscal Cliff, that catastrophic year-end coincidence of the expiration of the Bush Tax Cuts and the impositon of across-the-board budget cuts that most economists agree will cause the U. S. economy to tail spin into a recession. Most of our leaders believe that allowing us to fall over the Cliff is bad policy, but one side insists that the remedy must be at the expense of entitlements and the other at the expense of tax cuts---neither side having left room for compromise. And all of this must be addressed by a lame duck Congress! Yikes! Despite protestations to the contrary, "with the cliff so near", it looks to me that a sizable number of our elected officials "have a death wish." This is a real and looming crisis, Dear Readers, one that prompted 80 CEO's representing a broad range of political views to petition this week that it be resolved ASAP! Indeed, the Fiscal Cliff is the reason that I am effectively out of the stock market at present.
My decision to liquidate was the topic of discussion this week with one of my subscribers, a devotee of Warren Buffett. Buffett, the nation's second wealthiest man and a person who is deemed so savvy in investing that he is called "The Oracle of Omaha" (or is that "of Obama"?), has long preached that one cannot time the market. Buy great, undervalued companies, croons he, hold their stock for years as the value unfolds and refrain from worrying about issues of the day (e.g. the Fiscal Cliff). But, query, what is the "history of this jukebox"? Is the Buffett Hotel really the "place to go"? If one had invested $50,000 in Berkshire Hathaway (Buffett's holding company) in January, 2000 it would be worth $130,000 today. But if one had invested $50,000 in Berkshire in December, 2007 (just before The Great Recession), it would be worth $46,000 today (with no dividends having been paid). Frankly, Warren, my horizon is not that long. I'm not saying you are a "scoundrel", but I needed (and got) a decent return on my investments over the past 5 years. And I would not have consumed an 8% loss even if served in Warren's Buffet. The Oracle may have the luxury of time---I do not--certainly not 5 years in the hole.
As the world spins toward the Fiscal Cliff, the lovely (and fiscally conservative) Barbara and I sleep soundly with our holdings mostly in cash. If suddenly the market turns and rockets upward with us on the sidelines
"Some people (will) claim that there's a woman to blame
But I know it (will be) my own damned fault"
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"To get water from a faucet/You got to turn it
And if you want my love/You got to earn it, earn it, earn it."--lyrics from "You've Got to Earn It" by the Temptations
"So what do I do/With this death wish I have?
With the cliff's edge so near?"---lyrics from "Cliff's Edge" by Patrick Swayze
"And there's history on the juke box/Where the spies and scoundrels dwell
It was the place to go in Bamako/Direction--Buffet Hotel"---lyrics from "Buffet Hotel" by Jimmy Buffett
We are in the midst of the third quarter earnings season. So far, over 60% of the companies reporting have failed to beat expected revenues (although, through cost cutting, 67% have beaten bottom line expectations). The stock market has reacted negatively to the news. The Dow Jones Industrial Average closed down 236 points for the week. If companies want investor's "love" (read, money), they are going to have to "earn it, earn it, earn it." by "turning on a faucet" of financial performance. That did not happen in Q3, and the guidance that companies are giving for Q4 does not portend for the better.
Of course, the reasons why any given company has not performed above expectations are unique, but one common theme is the deleterious impact of the Fiscal Cliff, that catastrophic year-end coincidence of the expiration of the Bush Tax Cuts and the impositon of across-the-board budget cuts that most economists agree will cause the U. S. economy to tail spin into a recession. Most of our leaders believe that allowing us to fall over the Cliff is bad policy, but one side insists that the remedy must be at the expense of entitlements and the other at the expense of tax cuts---neither side having left room for compromise. And all of this must be addressed by a lame duck Congress! Yikes! Despite protestations to the contrary, "with the cliff so near", it looks to me that a sizable number of our elected officials "have a death wish." This is a real and looming crisis, Dear Readers, one that prompted 80 CEO's representing a broad range of political views to petition this week that it be resolved ASAP! Indeed, the Fiscal Cliff is the reason that I am effectively out of the stock market at present.
My decision to liquidate was the topic of discussion this week with one of my subscribers, a devotee of Warren Buffett. Buffett, the nation's second wealthiest man and a person who is deemed so savvy in investing that he is called "The Oracle of Omaha" (or is that "of Obama"?), has long preached that one cannot time the market. Buy great, undervalued companies, croons he, hold their stock for years as the value unfolds and refrain from worrying about issues of the day (e.g. the Fiscal Cliff). But, query, what is the "history of this jukebox"? Is the Buffett Hotel really the "place to go"? If one had invested $50,000 in Berkshire Hathaway (Buffett's holding company) in January, 2000 it would be worth $130,000 today. But if one had invested $50,000 in Berkshire in December, 2007 (just before The Great Recession), it would be worth $46,000 today (with no dividends having been paid). Frankly, Warren, my horizon is not that long. I'm not saying you are a "scoundrel", but I needed (and got) a decent return on my investments over the past 5 years. And I would not have consumed an 8% loss even if served in Warren's Buffet. The Oracle may have the luxury of time---I do not--certainly not 5 years in the hole.
As the world spins toward the Fiscal Cliff, the lovely (and fiscally conservative) Barbara and I sleep soundly with our holdings mostly in cash. If suddenly the market turns and rockets upward with us on the sidelines
"Some people (will) claim that there's a woman to blame
But I know it (will be) my own damned fault"
Saturday, October 20, 2012
October 20, 2012 The Other Side
Risk/Reward Vol. 140
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"If they don't win it's a shame
For it's one, two, three strikes you're out/ At the old ballgame"---lyrics from "Take Me Out to the Ballgame" by Norworth/VonTilzer
"Well variety is the spice of life
That's what the judge is gonna tell my wife"---lyrics from "Variety Is The Spice of Life" by the Doors (after Jim Morrison's death)
"Swimming upstream, swimming upstream
Fightin' every inch of the way for a poor boy's dream"---lyrics from "Swimming Upstream" by Ricky Van Shelton
As I predicted in the previous edition, the stock market was on a roller coaster this week--up on good earnings reports early in the week and then tumbling on Friday with disappointments from Google, McDonald's and others. The Dow Industrials gained a meager 15 points this week.
"It's a shame", but one of my favorite sectors, agency mortgage real estate investment trusts (mReits), has experienced a great deal of volatility recently. Even stalwarts such as NLY and AGNC have been buffeted in the action. Through a bidding process, mReits purchase government guaranteed mortgages from Fannie Mae and Freddie Mac, profiting from the spread between the rate of return on the mortgage and the cost of shorter term borrowing. This has been very profitable for the past few years as mReit's cost of funds has dropped quicker than mortgage rates. However, three negative factors have contributed to upsetting this sector in the past two weeks. Strike One: the Federal Reserve's most recent round of quantitative easing (QE3) has introduced a new competitor into the mReit market which has driven mortgage rates/returns down: the Federal Reserve itself. That's right, the Fed is bidding on and purchasing more than $40billion of mortgages each month. Yikes! Strike Two: this unprecedented availability of lower interest rates has resulted in a wave of refinancing with higher yielding mortgages being repaid and replaced by lower yielding ones. Strike Three: these early repayments have reduced the book value of each mReit, and one should resist paying more than book value for any of these entities even though their yields are attractive above book value. The run on mReits in the past few weeks caused NLY to authorize a share buy back which has served to stabilize the price. Despite the disruption in the sector, however, mReits are not "out" of my list of favorites---they are still in my "ballgame." That said, I sold most of my mReit positions before heading to France and before the volatility began, but I will reinvest once the Fiscal Cliff is resolved.
Even though I have been taking profits and raising cash over the past few weeks in advance of the election and the Fiscal Cliff, I really like my pre-liqidation portfolio, and you can "tell my wife" that I will reconstruct it in time. "Variety" or I should say diversity being "the spice of life", my holdings were comprised in equal measure of Reits (mReits, commercial mortgage reits, conventional reits, etc. ), finance/insurance (bank preferreds, insurance preferreds, business development companies, etc. ) and oil/natural gas (major oil, small e&d companies, pipeline and storage mlp's, etc.) with lesser percentages in utilities, natural resources and health care. These sectors pay handsome dividends averaging over 7%. Noticeably absent are tech, industrials and retail which simply do not provide enough dividend income to suit my desires.
In the oil and natural gas space, I continue to love Linn Energy (LINE). This "upstream" company (upstream=exploration and development or e&d, midstream=pipelines and storage, downstream=refining and distribution) continues to do "swimmingly" well having appreciated 15% this year while still paying 7+%. What I like most is its hedging activity which guarantees a decent return for years to come. Last week, LINE, a limited partnership, issued a new security LNCO which trades as a common stock and thus is appropriate for investment by retirement vehicles. I highly recommend that you take a look at this. LINE has fulfilled this "poor boy's dreams" and LNCO can do the same for anyone's 401k, IRA or similar account.
As stated above, I am liquidating my holdings in an orderly fashion in advance of the Fiscal Cliff. This is earlier than I had planned but our trip to France provided a convenient starting point. I don't see the election providing a market stimulus no matter who wins. It is what happens in the days immediately following the election that will count. Stories out of D.C this week indicate that President Obama is not inclined to compromise on any of his proposals which means the Bush Tax Cuts will end---and that will not be good for the stock market. Stocks may become much cheaper in the weeks ahead, and I want plenty of cash available to take advantage of the dip. I don't see any scenario between now and year end in which stocks will escalate significantly. I am willing to forego one quarter's worth of dividends to avoid the pain. Let the elections take place, and let the Fiscal Cliff come or otherwise be resolved. Then and only then can we, like the Doors, "break on through to the other side."
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"If they don't win it's a shame
For it's one, two, three strikes you're out/ At the old ballgame"---lyrics from "Take Me Out to the Ballgame" by Norworth/VonTilzer
"Well variety is the spice of life
That's what the judge is gonna tell my wife"---lyrics from "Variety Is The Spice of Life" by the Doors (after Jim Morrison's death)
"Swimming upstream, swimming upstream
Fightin' every inch of the way for a poor boy's dream"---lyrics from "Swimming Upstream" by Ricky Van Shelton
As I predicted in the previous edition, the stock market was on a roller coaster this week--up on good earnings reports early in the week and then tumbling on Friday with disappointments from Google, McDonald's and others. The Dow Industrials gained a meager 15 points this week.
"It's a shame", but one of my favorite sectors, agency mortgage real estate investment trusts (mReits), has experienced a great deal of volatility recently. Even stalwarts such as NLY and AGNC have been buffeted in the action. Through a bidding process, mReits purchase government guaranteed mortgages from Fannie Mae and Freddie Mac, profiting from the spread between the rate of return on the mortgage and the cost of shorter term borrowing. This has been very profitable for the past few years as mReit's cost of funds has dropped quicker than mortgage rates. However, three negative factors have contributed to upsetting this sector in the past two weeks. Strike One: the Federal Reserve's most recent round of quantitative easing (QE3) has introduced a new competitor into the mReit market which has driven mortgage rates/returns down: the Federal Reserve itself. That's right, the Fed is bidding on and purchasing more than $40billion of mortgages each month. Yikes! Strike Two: this unprecedented availability of lower interest rates has resulted in a wave of refinancing with higher yielding mortgages being repaid and replaced by lower yielding ones. Strike Three: these early repayments have reduced the book value of each mReit, and one should resist paying more than book value for any of these entities even though their yields are attractive above book value. The run on mReits in the past few weeks caused NLY to authorize a share buy back which has served to stabilize the price. Despite the disruption in the sector, however, mReits are not "out" of my list of favorites---they are still in my "ballgame." That said, I sold most of my mReit positions before heading to France and before the volatility began, but I will reinvest once the Fiscal Cliff is resolved.
Even though I have been taking profits and raising cash over the past few weeks in advance of the election and the Fiscal Cliff, I really like my pre-liqidation portfolio, and you can "tell my wife" that I will reconstruct it in time. "Variety" or I should say diversity being "the spice of life", my holdings were comprised in equal measure of Reits (mReits, commercial mortgage reits, conventional reits, etc. ), finance/insurance (bank preferreds, insurance preferreds, business development companies, etc. ) and oil/natural gas (major oil, small e&d companies, pipeline and storage mlp's, etc.) with lesser percentages in utilities, natural resources and health care. These sectors pay handsome dividends averaging over 7%. Noticeably absent are tech, industrials and retail which simply do not provide enough dividend income to suit my desires.
In the oil and natural gas space, I continue to love Linn Energy (LINE). This "upstream" company (upstream=exploration and development or e&d, midstream=pipelines and storage, downstream=refining and distribution) continues to do "swimmingly" well having appreciated 15% this year while still paying 7+%. What I like most is its hedging activity which guarantees a decent return for years to come. Last week, LINE, a limited partnership, issued a new security LNCO which trades as a common stock and thus is appropriate for investment by retirement vehicles. I highly recommend that you take a look at this. LINE has fulfilled this "poor boy's dreams" and LNCO can do the same for anyone's 401k, IRA or similar account.
As stated above, I am liquidating my holdings in an orderly fashion in advance of the Fiscal Cliff. This is earlier than I had planned but our trip to France provided a convenient starting point. I don't see the election providing a market stimulus no matter who wins. It is what happens in the days immediately following the election that will count. Stories out of D.C this week indicate that President Obama is not inclined to compromise on any of his proposals which means the Bush Tax Cuts will end---and that will not be good for the stock market. Stocks may become much cheaper in the weeks ahead, and I want plenty of cash available to take advantage of the dip. I don't see any scenario between now and year end in which stocks will escalate significantly. I am willing to forego one quarter's worth of dividends to avoid the pain. Let the elections take place, and let the Fiscal Cliff come or otherwise be resolved. Then and only then can we, like the Doors, "break on through to the other side."
Saturday, October 13, 2012
October 13, 2012 Wear Your Love Like Heaven
Risk/Reward Vol. 139
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"You've got to pick up every stitch/Beatniks are out to make it rich
Oh no, must be the season of the witch/Must be the season of the witch"---lyrics from "Season of the Witch" by Donovan
"Head under water and they tell me/To breathe easy for a while
The breathing's getting harder/Even I know this"---lyrics from "Love Song" by Sara Bareilles
"I'll tell you something/ That Jack, he is a banker and Jane she is a clerk
And both of them save their money/When they come home from work
Sweet Jane/Sweet Jane"---lyrics from "Sweet Jane" by Lou Reed
With third quarter earnings reports (and future guidance) beginning this week, we are in "the season of the witch"---or should I say the season of the which. Which will it be? A season in which earnings propel the market upward--- one in which investors can "pick up every stitch" and even "beatniks get rich?" Or one in which lower earnings drag the market down? I look for a few weeks of roller coaster performance with individual stock fundamentals holding sway. That said, the commentators believe we are in for disappointment. This week was disappointing for sure, with the Dow Jones Industrial Average falling 282 points. Accordingly, I have not redeployed the cash that I raised before leaving for Europe and have sold more in the interim.
When I do redeploy, "I know this": I will be reinvesting in the preferred shares of commercial mortgage real estate investment trusts ("cmReits") like NRFpA or B and RASpA or B. Over the next 5 years, $2 trillion of commercial real estate mortgages become due and of those, $1trillion are "under water"---that is the value of the real estate is worth less than the balance due on the mortgage. Banks will not renew these obligations, many of which they have had to write down. But commercial real estate owners can "breathe easy for a while" because into this financing void have ridden cmREITS, pools of money, the managers of which know how to underwrite sophisticated refinancings. And there are plenty of opportunities. Take a look at the number of new offerings listed on www.quantumonline.com .
Lastly, I bid farewell to one of the most astute investors that I have ever met, my mother in law, "Sweet Jane" Holt. Widowed at an early age, Jane re-entered the work force after a 20 year hiatus, serving as a member of the administrative staff at Park Tudor School for 17 years. During that time, Jane provided for her children and maintained a series of beautiful homes---all the while saving and investing, in homage to one the mantras of her generation: "don't ever be a financial burden to your children." In retirement, Jane travelled the world and during the last eight years of her life lived in a lovely apartment at Hoosier Village---all the while embodying another mantra of her generation: "never invade principal." I saw her portfolio for the first time yesterday and was impressed by its construction and diversity. I only wish she would have been more open with her investment philosophy, but modesty prevented her from doing so.
In the spring of 1968, Jane and Jim Holt (along with Betty and Jack Busch) chaperoned the North Central High School Junior Prom. The theme of the Prom was the title of a popular song at the time by Donovan, "Wear Your Love Like Heaven." Until this week, I thought this was the most insipid prom theme I had ever encountered. But yesterday, I read the lyrics. I now see the song as a musical picture, a picture of Jane Holt standing on the porch of her cottage in Linden Hills gazing westward at the sunset (the most beautiful in the world):
"Color in sky prussian blue/Scarlet fleece changes hue
Crimson ball sinks from view/Wear your love like heaven, wear your love like heaven."
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"You've got to pick up every stitch/Beatniks are out to make it rich
Oh no, must be the season of the witch/Must be the season of the witch"---lyrics from "Season of the Witch" by Donovan
"Head under water and they tell me/To breathe easy for a while
The breathing's getting harder/Even I know this"---lyrics from "Love Song" by Sara Bareilles
"I'll tell you something/ That Jack, he is a banker and Jane she is a clerk
And both of them save their money/When they come home from work
Sweet Jane/Sweet Jane"---lyrics from "Sweet Jane" by Lou Reed
With third quarter earnings reports (and future guidance) beginning this week, we are in "the season of the witch"---or should I say the season of the which. Which will it be? A season in which earnings propel the market upward--- one in which investors can "pick up every stitch" and even "beatniks get rich?" Or one in which lower earnings drag the market down? I look for a few weeks of roller coaster performance with individual stock fundamentals holding sway. That said, the commentators believe we are in for disappointment. This week was disappointing for sure, with the Dow Jones Industrial Average falling 282 points. Accordingly, I have not redeployed the cash that I raised before leaving for Europe and have sold more in the interim.
When I do redeploy, "I know this": I will be reinvesting in the preferred shares of commercial mortgage real estate investment trusts ("cmReits") like NRFpA or B and RASpA or B. Over the next 5 years, $2 trillion of commercial real estate mortgages become due and of those, $1trillion are "under water"---that is the value of the real estate is worth less than the balance due on the mortgage. Banks will not renew these obligations, many of which they have had to write down. But commercial real estate owners can "breathe easy for a while" because into this financing void have ridden cmREITS, pools of money, the managers of which know how to underwrite sophisticated refinancings. And there are plenty of opportunities. Take a look at the number of new offerings listed on www.quantumonline.com .
Lastly, I bid farewell to one of the most astute investors that I have ever met, my mother in law, "Sweet Jane" Holt. Widowed at an early age, Jane re-entered the work force after a 20 year hiatus, serving as a member of the administrative staff at Park Tudor School for 17 years. During that time, Jane provided for her children and maintained a series of beautiful homes---all the while saving and investing, in homage to one the mantras of her generation: "don't ever be a financial burden to your children." In retirement, Jane travelled the world and during the last eight years of her life lived in a lovely apartment at Hoosier Village---all the while embodying another mantra of her generation: "never invade principal." I saw her portfolio for the first time yesterday and was impressed by its construction and diversity. I only wish she would have been more open with her investment philosophy, but modesty prevented her from doing so.
In the spring of 1968, Jane and Jim Holt (along with Betty and Jack Busch) chaperoned the North Central High School Junior Prom. The theme of the Prom was the title of a popular song at the time by Donovan, "Wear Your Love Like Heaven." Until this week, I thought this was the most insipid prom theme I had ever encountered. But yesterday, I read the lyrics. I now see the song as a musical picture, a picture of Jane Holt standing on the porch of her cottage in Linden Hills gazing westward at the sunset (the most beautiful in the world):
"Color in sky prussian blue/Scarlet fleece changes hue
Crimson ball sinks from view/Wear your love like heaven, wear your love like heaven."
Saturday, September 29, 2012
September 29, 2012 High Anxiety
Risk/Reward Vol. 138
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"You know it seems the more we talk about it/It only makes it worse to live without it
But let's talk about it/Wouldn't it be nice."---lyrics from "Wouldn't It Be Nice" by the Beach Boys
"I'm half a world/Half the world away
I had too much to drink/I didn't think
And I didn't think of you."---lyrics from "Half a World Away" by REM
"High anxiety, whenever you are near/High anxiety, it's you that I fear
My heart's afraid to fly/It crashed before
But then you take my hand/And my heart starts to soar"---lyrics from "High Anxiety" by Mel Brooks
Next week, the First Lady and I depart for a sojourn in Nice. I will be thousands of miles and several time zones removed from my trading desk. But, it does not "make it worse to live without it." "Let's talk about it". Armed with a third generation Kindle that has international capabilities and with wifi in the apartment we have let, I can do my daily reading (IBD, WSJ and Financial Times) and access all of my stock accounts. On our day trips throughout the Riviera, I will carry my iPad which has international 3G coverage thus allowing me to trade at a cafe, on the beach or in a casino. With a daughter, son in law and grandson in London, we have made the trip across the Pond many times, and this array of technology has allowed me to buy and sell seamlessly. But, "wouldn't it be Nice" not to worry about the market ?
Yes. So this trip, "half a world away", I decided to halve my portfolio. "I don't want to think, and I want too much to drink." And this is how I did it---painlessly. Half (actually about 40%) of my tradable portfolio is in self directed retirement accounts (IRA's or a 401k). Income and capital gains in these accounts are not taxed until withdrawal, so they make excellent vehicles for holding high yielding securities that are not otherwise tax advantaged such as real estate investment trusts, oil trusts, exchange traded debt and various closed end funds (but not master limited partnerships). Having already reaped this quarter's dividends, I sold these holdings after Thursday's move upward, with no tax consequence. My only potential loss is an uptick in the market in the next ten days or so. When I return, I can repurchase any or all of them with nothing lost other than $7 in selling commissions and $7 in repurchasing commissions. I am looking forward to some carefree REM.
Frankly, I may have pruned my holdings even if I were staying Stateside. With last week's riots in Spain, with labor unrest at the Foxconn (Apple) plant in China, with the Dow heading lower in 5 of the last 6 trading days, with Israel and Iran no closer to ending a nuclear standoff and with threats from both sides of the aisle that Congress may actually stalemate us over the Fiscal Cliff , I have "High Anxiety". Although "my heart is still not afraid", this week I sensed more "fear" in the market---the kind that I sensed when it "crashed before." I certainly do not believe that the market "will soar"---at least not while I am gone. And I am not alone. One longtime reader and a person whose investing acumen I admire emailed me this week that he had exited.
Not counting my spouse-imposed 25% cash cushion, I am 60% invested. I am heeding advice from that noted philosopher, Mel Brooks who penned:
"Hope for the best/Expect the worse"---lyric from "The Twelve Chairs"
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"You know it seems the more we talk about it/It only makes it worse to live without it
But let's talk about it/Wouldn't it be nice."---lyrics from "Wouldn't It Be Nice" by the Beach Boys
"I'm half a world/Half the world away
I had too much to drink/I didn't think
And I didn't think of you."---lyrics from "Half a World Away" by REM
"High anxiety, whenever you are near/High anxiety, it's you that I fear
My heart's afraid to fly/It crashed before
But then you take my hand/And my heart starts to soar"---lyrics from "High Anxiety" by Mel Brooks
Next week, the First Lady and I depart for a sojourn in Nice. I will be thousands of miles and several time zones removed from my trading desk. But, it does not "make it worse to live without it." "Let's talk about it". Armed with a third generation Kindle that has international capabilities and with wifi in the apartment we have let, I can do my daily reading (IBD, WSJ and Financial Times) and access all of my stock accounts. On our day trips throughout the Riviera, I will carry my iPad which has international 3G coverage thus allowing me to trade at a cafe, on the beach or in a casino. With a daughter, son in law and grandson in London, we have made the trip across the Pond many times, and this array of technology has allowed me to buy and sell seamlessly. But, "wouldn't it be Nice" not to worry about the market ?
Yes. So this trip, "half a world away", I decided to halve my portfolio. "I don't want to think, and I want too much to drink." And this is how I did it---painlessly. Half (actually about 40%) of my tradable portfolio is in self directed retirement accounts (IRA's or a 401k). Income and capital gains in these accounts are not taxed until withdrawal, so they make excellent vehicles for holding high yielding securities that are not otherwise tax advantaged such as real estate investment trusts, oil trusts, exchange traded debt and various closed end funds (but not master limited partnerships). Having already reaped this quarter's dividends, I sold these holdings after Thursday's move upward, with no tax consequence. My only potential loss is an uptick in the market in the next ten days or so. When I return, I can repurchase any or all of them with nothing lost other than $7 in selling commissions and $7 in repurchasing commissions. I am looking forward to some carefree REM.
Frankly, I may have pruned my holdings even if I were staying Stateside. With last week's riots in Spain, with labor unrest at the Foxconn (Apple) plant in China, with the Dow heading lower in 5 of the last 6 trading days, with Israel and Iran no closer to ending a nuclear standoff and with threats from both sides of the aisle that Congress may actually stalemate us over the Fiscal Cliff , I have "High Anxiety". Although "my heart is still not afraid", this week I sensed more "fear" in the market---the kind that I sensed when it "crashed before." I certainly do not believe that the market "will soar"---at least not while I am gone. And I am not alone. One longtime reader and a person whose investing acumen I admire emailed me this week that he had exited.
Not counting my spouse-imposed 25% cash cushion, I am 60% invested. I am heeding advice from that noted philosopher, Mel Brooks who penned:
"Hope for the best/Expect the worse"---lyric from "The Twelve Chairs"
Saturday, September 22, 2012
September 22, 2012 Gangnam Style
Risk/Reward Vol. 137
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"We shall survive, let us take ourselves along/Where we fight our parents out in the streets
To find out who's right and who's wrong/B-B-B Benny and the Jets"---lyrics from "Benny and the Jets" by Elton John
"In New York, concrete jungle/ Where dreams are made of
There's nothing you can't do/Now you're in New York"---lyrics from "Empire State of Mind" by JayZ
"Bubbles, bubbles/I wish my name was Bubbles, Bubbles
I wish my friends were bubbles, bubbles/I go real far on bubbles, bubbles"---lyrics from "Bubbles" by Linkin Park
As I have detailed over the past few weeks, two of the three economic conditions necessary for a stable stock market appear to be developing: 1) a plan to address sovereign debt in the Eurozone and 2) a stimulus program in China. The third condition, a resolution of the impending U. S. Fiscal Cliff, likely will develop before year end, but its contours (left, right or more likely a postponed decision) will not be known until after our elections in November. My concerns now run to possible exogenous events that could disrupt the world economy---and number one on my worry list is "B-B-B Benny and his Jets". Prime Minister Benjamin Netanyahu has proclaimed that in order for Israel to "survive" it must deliver a debilitating blow to Iran's nuclear capability. Some wags are predicting a strike by Israeli "Jets" sometime before our elections, a move that would force President Obama's support so as not to alienate Jewish voters. Whether you believe such a strike is "right" or "wrong", one consequence could be a blocking of the 21 mile wide Strait of Hormuz through which passes each day 17million barrels of oil, 20% of the world's daily consumption. Disruption of that flow would wreak havoc on the world's economy and would cause stock markets to plummet. This is a real concern, but is not one that has caused me to exit--yet.
You don't have to be JayZ or Carrie Bradshaw to know "what the dreams of real New Yorkers are made of": finding a rent controlled/rent stabilized apartment in "the concrete jungle". Once located, tenants rarely leave. Consequently, underwriting mortgages on rent controlled buildings is a safe, if boring way for banks to earn interest. And the recognized leader in underwriting rent controlled building mortgages is New York Community Bank (NYB), the nation's 21st largest bank. Sixty eight percent of its loan portfolio is multifamily residential building mortgages, most of which are rent controlled. But, what makes NYB attractive to me is its 7.2% dividend. Moreover, it has appreciated 7.8% since I bought it on July 26th.
Speaking of real estate, is anyone else concerned that cheap mortgage credit is creating another real estate bubble? Oh, don't get me wrong. So far this "bubble is my friend", and I "have gone real far" toward financial independence on this "bubble". Dividends from those real estate investment trusts that prosper in a low interest rate environment have rewarded me handsomely. I especially like the preferred stock of those REITs, the dividends on which must be paid in full before the even higher yielding (and less consistent) common stock dividends can be distributed. I am so attracted to this "bubble" that I am overweight in this sector. Under traditional rules of diversification, I would be deemed foolish. I take solace in the fact that I am vigilant to a fault so that at the slightest hint that any portion of this sector is weakening I can exit. For example, I am currently watching closely the impact of the Federal Reserve' s recently announced mortgage buying program (QE3) on agency mortgage reits (AGNC, NLY, etc.) which could be adversely impacted by a plethora of refinancing. I do not recommend this overweighting for the less diligent.
Despite the negative tenor of this article, my portfolio (a list of which will be provided under cover of a separate email) just experienced a great week, performing far better than the market in general. Indeed, the stable to upward performance of the market since my re-entry in June has provided me a welcome "Psy" of relief from the turbulence that dominated the first several months of the year. At this rate (my portfolio averages 7.5+% in dividends), even in retirement I will be able to afford my "sexy lady" and to otherwise lead my life-- "Gangnam style."
Sunday, September 16, 2012
September 15, 2012 The Dreamers
Risk/Reward Vol. 136
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"On a day like today/We pass the time away
Writing love letters/ In the sand."---lyrics from "Love Letters in the Sand" sung by Pat Boone
"Kick your feet up/Swing your arms up too
Move your head both ways/Like you see me do
Then jump three feet to the swinging beat
Do the Freddie/Do the Freddie"---lyrics from "Do the Freddie" by Freddie and the Dreamers
"It's like thunder, lightning
The way you love me is frightening
I'd better knock, on wood, Baby"---lyrics from "Knock on Wood" sung by Eddie Floyd
With its high court affirming Germany's participation in the Eurozone bail out (at least so far) and Federal Reserve Chairman Ben Bernanke announcing an open ended, $40billion/month round of quantitative easing (QE3), the Dow Jones Industrial Average (DJIA) shot skyward, ending the week up 287 points. The DJIA closed on Friday at 13,593, its highest point since December, 2007. The events necessary to underpin a rising stock market are coming to pass with two more left to go: 1) further Chinese stimulus and 2) resolution of the U.S. Fiscal Cliff, both of which I have discussed extensively in previous editions. Look for announcements relating to the former after next month's Chinese Communist Party Congress. The latter will not be addressed until after our elections. If these two events happen, and no major disaster occurs (e.g. Israel strikes Iran), I look for a stable to upwardly moving stock market for the remainder of the year. As the Eurozone and the US compete in a contest to determine who can debase its currency more, staying in cash looks to be the riskiest of all investment strategies no matter how the Fiscal Cliff is resolved. Resolving the Fiscal Cliff is what matters--no matter who sits in the White House. In the interim and assuming a resolution is reached, dividend paying stocks should do well as yield hungry investors seek refuge from low interest bonds. Inflation hedges such as gold and commodities should shine as well.
From 2006 to 2009, I commuted each week to Eau Claire: from Milwaukee by car; from South Haven by airplane through Minneapolis. I often "passed the time away" by marvelling at the beauty of Wisconsin's rolling landscape, especially that between Mauston and Menomonie. Little did I realized that underneath those mounds lay "love letters" in the form of Northern White "sand". These monocrystals found just below the fertile top soil are the perfect proppant or medium for fracking, that newly exploited horizontal drilling process that, since 2008, has revolutionized oil and gas production the the United States. Indeed, in the past 3 years, the number of frac sand mines (approximately 90) has doubled in Wisconsin, the Saudi Arabia of Northern White. Few sand mining companies are available for investment, but last month HiCrush Partners (HCLP) offered partnership units in its Wyeville, Wisconsin operation to the public. I read the prospectus and was impressed by the likelihood that it will exceed its projected 7.8% dividend for many years to come. But, what prompted me to buy was the fact that Kayne Anderson Capital Advisors, the saviest of all of the oil and gas investment fund managers, purchased 15% of the units.
Speaking of fracking, the year to date performance of Indianapolis based, Calumet Specialty Products, LP (CLMT) ( founded by none other than my high school classmate, Fred Fehsenfeld) is reason to "kick your feet up, and to swing your arms up too". This refiner of specialty petroleum products (plastics, cosmetic bases, crayons, ski wax, jet fuel etc.) has taken advantage of inexpensive oil and natural gas liquids emanating from the fracking fields to improve its production and profits. The shares I bought last January would have appreciated 34% if I had not sold them (for a profit) in May, and have appreciated 14% since I repurchased them in July---all the while paying an 8%+ dividend. CLMT is a good reason "to jump three feet to the swinging beat." Thank you, Mr. Fehsenfeld! In your honor, I "Do the Freddie".
In the aftermath of the 2008-2009 financial crisis, commercial real estate (CRE) was in the dumpster. As a result, banks eschewed underwriting CRE mortgages as part of their own de-leveraging. Hearing opportunity "knock", several savvy investment funds formed commercial real estate mortgage investment trusts (mREITS) as quickly as "thunder" follows "lightning." The largest and one of the most successful of these post 2008 mREITS is Starwood Property Trust formed by Barry Sternlicht of Starwood Hotels fame. Recently, STWD has been underwriting commercial mortgages in Europe to great advantage which leads me to believe it will increase its already impressive 7.4% dividend.
This week, in addition to HCLP and STWD, I added more AAPL in advance of the iPhone 5 launch and more Vanguard Natural Resources (VNR) on a secondary offering dip. I also initiated a position in a newly issued preferred stock of Annaly Capital. In anticipation of a rise in commodity prices, I bought shares in a closed end fund, BCF, which holds positions in all of the major commodity players. Frankly, I am sorry that I sold my iron ore mining stocks (CLF, RIO and BHP) two weeks ago. Proof again that timing is everything.
The stock market has performed beyond expectations since my re-entry in June, especially this week thanks to the QE3 "sugar high". Although I remain cautious and ready to exit if necessary, I must admit that today, when I think of the stock market, I channel Freddie and the Dreamers who sang:
"I'm telling you now/I'm telling you right away
I'll be staying for many a day/I'm in love with you now."
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"On a day like today/We pass the time away
Writing love letters/ In the sand."---lyrics from "Love Letters in the Sand" sung by Pat Boone
"Kick your feet up/Swing your arms up too
Move your head both ways/Like you see me do
Then jump three feet to the swinging beat
Do the Freddie/Do the Freddie"---lyrics from "Do the Freddie" by Freddie and the Dreamers
"It's like thunder, lightning
The way you love me is frightening
I'd better knock, on wood, Baby"---lyrics from "Knock on Wood" sung by Eddie Floyd
With its high court affirming Germany's participation in the Eurozone bail out (at least so far) and Federal Reserve Chairman Ben Bernanke announcing an open ended, $40billion/month round of quantitative easing (QE3), the Dow Jones Industrial Average (DJIA) shot skyward, ending the week up 287 points. The DJIA closed on Friday at 13,593, its highest point since December, 2007. The events necessary to underpin a rising stock market are coming to pass with two more left to go: 1) further Chinese stimulus and 2) resolution of the U.S. Fiscal Cliff, both of which I have discussed extensively in previous editions. Look for announcements relating to the former after next month's Chinese Communist Party Congress. The latter will not be addressed until after our elections. If these two events happen, and no major disaster occurs (e.g. Israel strikes Iran), I look for a stable to upwardly moving stock market for the remainder of the year. As the Eurozone and the US compete in a contest to determine who can debase its currency more, staying in cash looks to be the riskiest of all investment strategies no matter how the Fiscal Cliff is resolved. Resolving the Fiscal Cliff is what matters--no matter who sits in the White House. In the interim and assuming a resolution is reached, dividend paying stocks should do well as yield hungry investors seek refuge from low interest bonds. Inflation hedges such as gold and commodities should shine as well.
From 2006 to 2009, I commuted each week to Eau Claire: from Milwaukee by car; from South Haven by airplane through Minneapolis. I often "passed the time away" by marvelling at the beauty of Wisconsin's rolling landscape, especially that between Mauston and Menomonie. Little did I realized that underneath those mounds lay "love letters" in the form of Northern White "sand". These monocrystals found just below the fertile top soil are the perfect proppant or medium for fracking, that newly exploited horizontal drilling process that, since 2008, has revolutionized oil and gas production the the United States. Indeed, in the past 3 years, the number of frac sand mines (approximately 90) has doubled in Wisconsin, the Saudi Arabia of Northern White. Few sand mining companies are available for investment, but last month HiCrush Partners (HCLP) offered partnership units in its Wyeville, Wisconsin operation to the public. I read the prospectus and was impressed by the likelihood that it will exceed its projected 7.8% dividend for many years to come. But, what prompted me to buy was the fact that Kayne Anderson Capital Advisors, the saviest of all of the oil and gas investment fund managers, purchased 15% of the units.
Speaking of fracking, the year to date performance of Indianapolis based, Calumet Specialty Products, LP (CLMT) ( founded by none other than my high school classmate, Fred Fehsenfeld) is reason to "kick your feet up, and to swing your arms up too". This refiner of specialty petroleum products (plastics, cosmetic bases, crayons, ski wax, jet fuel etc.) has taken advantage of inexpensive oil and natural gas liquids emanating from the fracking fields to improve its production and profits. The shares I bought last January would have appreciated 34% if I had not sold them (for a profit) in May, and have appreciated 14% since I repurchased them in July---all the while paying an 8%+ dividend. CLMT is a good reason "to jump three feet to the swinging beat." Thank you, Mr. Fehsenfeld! In your honor, I "Do the Freddie".
In the aftermath of the 2008-2009 financial crisis, commercial real estate (CRE) was in the dumpster. As a result, banks eschewed underwriting CRE mortgages as part of their own de-leveraging. Hearing opportunity "knock", several savvy investment funds formed commercial real estate mortgage investment trusts (mREITS) as quickly as "thunder" follows "lightning." The largest and one of the most successful of these post 2008 mREITS is Starwood Property Trust formed by Barry Sternlicht of Starwood Hotels fame. Recently, STWD has been underwriting commercial mortgages in Europe to great advantage which leads me to believe it will increase its already impressive 7.4% dividend.
This week, in addition to HCLP and STWD, I added more AAPL in advance of the iPhone 5 launch and more Vanguard Natural Resources (VNR) on a secondary offering dip. I also initiated a position in a newly issued preferred stock of Annaly Capital. In anticipation of a rise in commodity prices, I bought shares in a closed end fund, BCF, which holds positions in all of the major commodity players. Frankly, I am sorry that I sold my iron ore mining stocks (CLF, RIO and BHP) two weeks ago. Proof again that timing is everything.
The stock market has performed beyond expectations since my re-entry in June, especially this week thanks to the QE3 "sugar high". Although I remain cautious and ready to exit if necessary, I must admit that today, when I think of the stock market, I channel Freddie and the Dreamers who sang:
"I'm telling you now/I'm telling you right away
I'll be staying for many a day/I'm in love with you now."
Saturday, September 8, 2012
September 8, 2011 Right to Party
Risk/Reward Vol. 135
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"Singin' songs loud on the way to the game/Wishin' all the things could still be the same
Chinese home runs over the backstop/Kakua on the ball and soda pop"---lyrics from "Mudfootball" by Jack Johnson
"Overture, curtains, lights/This is it the night of nights
No more rehearsing/And nursing a part"---lyrics from "This Is It", the Bugs Bunny Overture
"A transition is occurring/And I am not blind
As the pendulum swings/A new age we enter"---lyrics from "Update" by the Beastie Boys
"Overture, please". On Thursday, Mario Draghi, the president of the European Central Bank (ECB), stole the show by announcing (finally!!!) that the ECB was prepared, on its own, to buy sovereign debt from troubled nations (read, Spain and Italy) under its inherent authority to preserve the Euro. No need to seek permission from Germany; no handwringing with the French. So long as each country abides by fiscal promises to be made to the International Monetary Fund and the European Commission, the ECB will buy unlimited amounts of such bonds. In the words of Mr. Draghi, the ECB is now the official "backstop" against a monetary collapse of the Eurozone. Immediately, the stock markets were "singin' loud on the way" to a huge day. By the close on Thursday, the Dow Jones Industrial Average reached a point it had not seen since December, 2007! Buyers believed "all things could still be the same" as back then--before the Lehman Brothers meltdown. Let's all hope that the ECB's commitment is not a "Chinese home run" (slang for a foul ball hit over the backstop).
The ECB's bond buying commitiment is one of the three legs necessary to support a healthy stock market and about which I have been writing since June. One of the others, a massive Chinese stimulus package, likely will not be forthcoming before the Communist Party Congress scheduled for mid October ( A $150billion infrastructure program was announced yesterday, however) As for the third leg, resolution of the U.S. Fiscal Cliff, nothing will occur until after our November elections. One word of caution is warranted in the interim. If the stock markets continue to shine, the Federal Reserve may hold back next week on an anticipated quantitative easing (QE) program despite the disappointing jobs numbers issued yesterday. If Fed Chair Bernanke does not pull the QE trigger, the stock market could be negatively impacted, but not enough to warrant an exit. Let's hope for some more QE and pray that some extragenous event (e.g. Israel bombing Iran or the German Supreme Court declaring the ECB bailout unconstitutional) does not disrupt this great run.
Following on a theme I addressed last week, the information available on the Web is truly amazing. I often access the homepage of a company the stock of which I am contemplating purchasing, click on the "Investor Relations" tab and look for "Presentations". These powerpoint or pdf card decks are as illuminating as an "overture, the opening of curtains or the shining of lights". Oh, management has clearly "rehearsed and nursed" these slides, but they are extremely informative, nevertheless.
I took advantage of dips in the prices of MHRpD, NS, EEP and TAC occasioned by secondary offerings to buy more of each this week. So, John, how does one know about these secondary offerings in time to take advantage of the dips. Easy. I list all of my stocks in the "Portfolio" section of SeekingAlpha.com and have "Updates" sent to my email account automatically. Thus, when "a transition is occurring, I am not blind." I buy "as the pendulum swings" to a favorable price.
One reader emailed me this week asking how my taxman keeps his sanity. Good question. Before anyone embarks on an aggressive program like I have adopted, one must identify a competent tax person who is familiar with master limited partnerships, real estate investment trusts, oil trusts and business development companies. Ironically, I received my 2011 tax returns this week (I always get an extension). They were 1/2" thick! Yes, Dear Readers, we need to simplify the tax code. Oh, and as for the cost---about the same as our anniversary dinner at Charley Trotter's. Well worth it on both accounts.
It was a great week to be invested, with the Dow Jones Industrial Average ending up 216 points. Standing firm in these uncertain times tries one's resolve, but so far, it has been worth it. Remember what the Beastie Boys preach:
"You have to fight for your right to party."
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"Singin' songs loud on the way to the game/Wishin' all the things could still be the same
Chinese home runs over the backstop/Kakua on the ball and soda pop"---lyrics from "Mudfootball" by Jack Johnson
"Overture, curtains, lights/This is it the night of nights
No more rehearsing/And nursing a part"---lyrics from "This Is It", the Bugs Bunny Overture
"A transition is occurring/And I am not blind
As the pendulum swings/A new age we enter"---lyrics from "Update" by the Beastie Boys
"Overture, please". On Thursday, Mario Draghi, the president of the European Central Bank (ECB), stole the show by announcing (finally!!!) that the ECB was prepared, on its own, to buy sovereign debt from troubled nations (read, Spain and Italy) under its inherent authority to preserve the Euro. No need to seek permission from Germany; no handwringing with the French. So long as each country abides by fiscal promises to be made to the International Monetary Fund and the European Commission, the ECB will buy unlimited amounts of such bonds. In the words of Mr. Draghi, the ECB is now the official "backstop" against a monetary collapse of the Eurozone. Immediately, the stock markets were "singin' loud on the way" to a huge day. By the close on Thursday, the Dow Jones Industrial Average reached a point it had not seen since December, 2007! Buyers believed "all things could still be the same" as back then--before the Lehman Brothers meltdown. Let's all hope that the ECB's commitment is not a "Chinese home run" (slang for a foul ball hit over the backstop).
The ECB's bond buying commitiment is one of the three legs necessary to support a healthy stock market and about which I have been writing since June. One of the others, a massive Chinese stimulus package, likely will not be forthcoming before the Communist Party Congress scheduled for mid October ( A $150billion infrastructure program was announced yesterday, however) As for the third leg, resolution of the U.S. Fiscal Cliff, nothing will occur until after our November elections. One word of caution is warranted in the interim. If the stock markets continue to shine, the Federal Reserve may hold back next week on an anticipated quantitative easing (QE) program despite the disappointing jobs numbers issued yesterday. If Fed Chair Bernanke does not pull the QE trigger, the stock market could be negatively impacted, but not enough to warrant an exit. Let's hope for some more QE and pray that some extragenous event (e.g. Israel bombing Iran or the German Supreme Court declaring the ECB bailout unconstitutional) does not disrupt this great run.
Following on a theme I addressed last week, the information available on the Web is truly amazing. I often access the homepage of a company the stock of which I am contemplating purchasing, click on the "Investor Relations" tab and look for "Presentations". These powerpoint or pdf card decks are as illuminating as an "overture, the opening of curtains or the shining of lights". Oh, management has clearly "rehearsed and nursed" these slides, but they are extremely informative, nevertheless.
I took advantage of dips in the prices of MHRpD, NS, EEP and TAC occasioned by secondary offerings to buy more of each this week. So, John, how does one know about these secondary offerings in time to take advantage of the dips. Easy. I list all of my stocks in the "Portfolio" section of SeekingAlpha.com and have "Updates" sent to my email account automatically. Thus, when "a transition is occurring, I am not blind." I buy "as the pendulum swings" to a favorable price.
One reader emailed me this week asking how my taxman keeps his sanity. Good question. Before anyone embarks on an aggressive program like I have adopted, one must identify a competent tax person who is familiar with master limited partnerships, real estate investment trusts, oil trusts and business development companies. Ironically, I received my 2011 tax returns this week (I always get an extension). They were 1/2" thick! Yes, Dear Readers, we need to simplify the tax code. Oh, and as for the cost---about the same as our anniversary dinner at Charley Trotter's. Well worth it on both accounts.
It was a great week to be invested, with the Dow Jones Industrial Average ending up 216 points. Standing firm in these uncertain times tries one's resolve, but so far, it has been worth it. Remember what the Beastie Boys preach:
"You have to fight for your right to party."
Saturday, September 1, 2012
September 1, 2011 Dylan
Risk/Reward Vol. 134
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"But you tell me/Over and over and over again, my friend
That you don't believe/We're on the eve of destruction"---lyrics from "Eve of Destruction" by Barry McGuire
"Some speak of the future/My love she speaks softly
She knows that there's no success like failure/And that failure's no success at all"---lyrics from "Love Minus Zero" by Bob Dylan
"Insight to what's going on/Information keeps us strong
What you don't know can hurt you bad/Take it from me you'll be walkin' around sad"---lyrics from "The Knowledge" sung by Janet Jackson
Faced with the Fiscal Cliff, the Eurozone debt crisis and the slowdown in China, several pundits, wags and commentators "believe/We're on the eve of destruction." But as I have written "over and over and over again, my friend", I believe salvation is available through a Fiscal Cliff compromise, further loosening of monetary policy here (quantitative easing) and in Europe (bond buying) and an infrastructure spending spree in China. So, when Fed Chairman Ben Bernanke, in a much anticipated speech at Jackson Hole, WY on Friday, did not commit firmly that quantitative easing was near, I thought the bottom would fall out of the stock market. I was wrong---it did not. The Dow Jones Industrial Average gained 90 points on Friday and closed the week down 66 points.
Well, as long as I am confessing error, I might as well acknowledge another miscalculation---iron ore. Just two weeks ago, I was touting Cliffs Natural Resources (CLF) and BHPBilliton (BHP). It was my conclusion that both had bottomed and would not fall further because of their healthy dividends. Boy, was I wrong, as both continued to plummet. But, as Bob Dylan wrote "there's no success like failure." What the hell does that mean, anyway? What does any Dylan lyric mean? I choose to believe that it means that we should learn from our failures. I learned--or should I say, relearned-- that I cannot and thus should not guess a bottom. Catch stars on the rise, not on the descent. I have no doubt that both of these stocks will rebound, just not now. I jumped too soon, and as Dylan says "failure's no success at all." What?
Well, as long as I am stuck in basketball analogies, let's talk about stock picking in general. Clearly, practice in picking stocks, like practice at the free throw line improves one's odds. But, practice does not make perfect in either pursuit. The average NBA player makes 75% of his free throws, and I bet that the average professional stock picker's odds aren't any better. Mine certainly are not, and I really work at it. That is why the first rule of stock picking is knowing when to sell a loser. My loss limit is 8%. In addition, to lock in profits, I adjust my 8% trigger upward if a stock appreciates significantly. In a world of $7 transaction costs, one need not absorb big losses---or forfeit big gains.
Ain't the information age wonderful! "Insight to what's going on" is literally at your fingertips via the internet. In the investing world, "what you don't know can hurt you bad", but with access to the web there is no excuse to "be walkin' around sad". The quality and the quantity of analysis on just one website, www.seekingalpha.com , is simply astounding, and there are several more sites of similar ilk. I peruse SeekingAlpha nightly, especially the tab entitled "Dividends and Income". It is the source of many of my investing ideas, and a reference I consult before every purchase.
In today's reality of depressed interest rates, achieving a decent return is hard work indeed. I long for the days of buy and hold, but alas I believe them to be gone--at least for now. Today, one simply can not afford to sit still. As Dylan wrote so many years ago,
"If your time to you is worth savin'/Then you better start swimmin'
Or you'll sink like a stone/For the times they are a changin'. "
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"But you tell me/Over and over and over again, my friend
That you don't believe/We're on the eve of destruction"---lyrics from "Eve of Destruction" by Barry McGuire
"Some speak of the future/My love she speaks softly
She knows that there's no success like failure/And that failure's no success at all"---lyrics from "Love Minus Zero" by Bob Dylan
"Insight to what's going on/Information keeps us strong
What you don't know can hurt you bad/Take it from me you'll be walkin' around sad"---lyrics from "The Knowledge" sung by Janet Jackson
Faced with the Fiscal Cliff, the Eurozone debt crisis and the slowdown in China, several pundits, wags and commentators "believe/We're on the eve of destruction." But as I have written "over and over and over again, my friend", I believe salvation is available through a Fiscal Cliff compromise, further loosening of monetary policy here (quantitative easing) and in Europe (bond buying) and an infrastructure spending spree in China. So, when Fed Chairman Ben Bernanke, in a much anticipated speech at Jackson Hole, WY on Friday, did not commit firmly that quantitative easing was near, I thought the bottom would fall out of the stock market. I was wrong---it did not. The Dow Jones Industrial Average gained 90 points on Friday and closed the week down 66 points.
Well, as long as I am confessing error, I might as well acknowledge another miscalculation---iron ore. Just two weeks ago, I was touting Cliffs Natural Resources (CLF) and BHPBilliton (BHP). It was my conclusion that both had bottomed and would not fall further because of their healthy dividends. Boy, was I wrong, as both continued to plummet. But, as Bob Dylan wrote "there's no success like failure." What the hell does that mean, anyway? What does any Dylan lyric mean? I choose to believe that it means that we should learn from our failures. I learned--or should I say, relearned-- that I cannot and thus should not guess a bottom. Catch stars on the rise, not on the descent. I have no doubt that both of these stocks will rebound, just not now. I jumped too soon, and as Dylan says "failure's no success at all." What?
Well, as long as I am stuck in basketball analogies, let's talk about stock picking in general. Clearly, practice in picking stocks, like practice at the free throw line improves one's odds. But, practice does not make perfect in either pursuit. The average NBA player makes 75% of his free throws, and I bet that the average professional stock picker's odds aren't any better. Mine certainly are not, and I really work at it. That is why the first rule of stock picking is knowing when to sell a loser. My loss limit is 8%. In addition, to lock in profits, I adjust my 8% trigger upward if a stock appreciates significantly. In a world of $7 transaction costs, one need not absorb big losses---or forfeit big gains.
Ain't the information age wonderful! "Insight to what's going on" is literally at your fingertips via the internet. In the investing world, "what you don't know can hurt you bad", but with access to the web there is no excuse to "be walkin' around sad". The quality and the quantity of analysis on just one website, www.seekingalpha.com , is simply astounding, and there are several more sites of similar ilk. I peruse SeekingAlpha nightly, especially the tab entitled "Dividends and Income". It is the source of many of my investing ideas, and a reference I consult before every purchase.
In today's reality of depressed interest rates, achieving a decent return is hard work indeed. I long for the days of buy and hold, but alas I believe them to be gone--at least for now. Today, one simply can not afford to sit still. As Dylan wrote so many years ago,
"If your time to you is worth savin'/Then you better start swimmin'
Or you'll sink like a stone/For the times they are a changin'. "
Saturday, August 25, 2012
August 25, 2012 Bright Eyes
Risk/Reward Vol. 133
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"Turn around, every now and then I get a little bit nervous/That the best of all the years have gone by
Turn around Bright Eyes/Every now and then I fall apart."---lyrics from "Total Eclipse of the Sun" by Jim Steinman/Bonnie Tyler
"You think I'm your fool/Well you may just be right
Cause minute by minute by minute/ I keep holding on"---lyrics from "Minute by Minute" sung by the Doobie Brothers
"Let's get down to business/I don't got no time to play around
What is this, must be a circus in town/Let's shut down on these clowns"---lyrics from "Business" by Eminem
After six weeks of upward movement, the Dow Jones Industrial Average (DJIA) did a "turn around," ending the week down 118 points. Was this just a hot market catching its breath, something that happens "every now and then?" Or, should we be "a little bit nervous/That the best of all the years have gone by?" Will the market recover or will it "fall apart?" Let's take a look, Bright Eyes.
The week started well and by Tuesday mid morning the DJIA was coasting above its four year closing high. At first, for technical reasons, there was a pullback and then "minute by minute by minute" the bad news began to roll. Federal Reserve member, James Bullard, stated on CNBC that quantitative easing may not be so imminent. Then, the Congressional Budget Office revised its report on the impact of the Fiscal Cliff (expiration of the Bush tax cuts, sequestration of appropriations and end of extended unemployment benefits all scheduled to occur on January 1, 2013) concluding that absent legislative action the Cliff will result in a recession in 2013. HSBC reported that the slowdown in China was worse than had been reported. Iron ore, a bellwether of industrial output, fell to a four year low. All the while, uncertainty continued to reign in the still vacationing Eurozone. By the closing bell on Thursday, the DJIA stood at 13,057, some 269 points below its Tuesday mid day high. On Friday, a relief rally spurred by a letter from Chair Bernanke to Congress that Fed action is available if necessary added 100 points to the DJIA.
Through it all, even though "you may think me a fool (and you may just be right)", I "kept holding on". I continue to believe that recession remains the number one concern of world economic and political leaders and that eventually various forms of stimulus (quantitative easing and a resolution of the Fiscal Cliff by the US, sovereign bond purchases by the European Central Bank and infrastructure investment by China) will be instituted. We simply have not reached the requisite level of desperation yet. That said, I remain disciplined. When RIO approached my 8% loss limit, I sold it, unhesitatingly. And I will go to 100% cash if and when I conclude that any element of the above described stimulus is not forthcoming. We need all three major economies to act in order to avert a world wide recession.
In the meantime, I remain in search of yield. As reported earlier, one of my favorite high yield sectors is "business" development companies ("BDC's"). These are pools of money that finance the sale or restructuring of privately held, middle market companies through senior loans, mezzanine financing and equity investments. BDC's have been very active over the past few years as commercial banks have shied away from financing middle market transactions. The king of this sector is Ares Capital (ARCC) which just last week launched a secondary offering of its stock. These events are always good buying opportunities, but if you want to take advantage of them you "can't clown around". I didn't "play around" but "got down to business" and grabbed some shares at a very attractive price. I also loaded up on FGB, a closed end fund comprised of the shares of several high quality BDC's, the price of which became attractive after it went ex-dividend this week.
Also, for those in hunt of yield in the oil and gas exploration and development space, take a look at Vanguard Natural Resources (VNR), a smaller version of Linn Energy which like LINE employs a smart hedging strategy, but, even better than LINE, pays an 8+% annual dividend on a monthly basis.
I bought some AAPL stock on a pullback on Tuesday. By any measure, Apple is a very cheap stock even at my entry point of $657. I rode AAPL from $427 to $636 earlier this year. We will see what Friday's patent verdict and the upcoming debut of the I-phone 5 bring.
No doubt about it, this was an anxious week. And I am very mindful of Bonnie Tyler's advice about "Heartaches". Don't let them hit you "when it's too late"; don't let them "hit you when you're down". If I am wrong about the stimulus, I will exit. Such an exit will undoubtedly cause me heartache, but it will be assuaged by some profits, I assure you.
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"Turn around, every now and then I get a little bit nervous/That the best of all the years have gone by
Turn around Bright Eyes/Every now and then I fall apart."---lyrics from "Total Eclipse of the Sun" by Jim Steinman/Bonnie Tyler
"You think I'm your fool/Well you may just be right
Cause minute by minute by minute/ I keep holding on"---lyrics from "Minute by Minute" sung by the Doobie Brothers
"Let's get down to business/I don't got no time to play around
What is this, must be a circus in town/Let's shut down on these clowns"---lyrics from "Business" by Eminem
After six weeks of upward movement, the Dow Jones Industrial Average (DJIA) did a "turn around," ending the week down 118 points. Was this just a hot market catching its breath, something that happens "every now and then?" Or, should we be "a little bit nervous/That the best of all the years have gone by?" Will the market recover or will it "fall apart?" Let's take a look, Bright Eyes.
The week started well and by Tuesday mid morning the DJIA was coasting above its four year closing high. At first, for technical reasons, there was a pullback and then "minute by minute by minute" the bad news began to roll. Federal Reserve member, James Bullard, stated on CNBC that quantitative easing may not be so imminent. Then, the Congressional Budget Office revised its report on the impact of the Fiscal Cliff (expiration of the Bush tax cuts, sequestration of appropriations and end of extended unemployment benefits all scheduled to occur on January 1, 2013) concluding that absent legislative action the Cliff will result in a recession in 2013. HSBC reported that the slowdown in China was worse than had been reported. Iron ore, a bellwether of industrial output, fell to a four year low. All the while, uncertainty continued to reign in the still vacationing Eurozone. By the closing bell on Thursday, the DJIA stood at 13,057, some 269 points below its Tuesday mid day high. On Friday, a relief rally spurred by a letter from Chair Bernanke to Congress that Fed action is available if necessary added 100 points to the DJIA.
Through it all, even though "you may think me a fool (and you may just be right)", I "kept holding on". I continue to believe that recession remains the number one concern of world economic and political leaders and that eventually various forms of stimulus (quantitative easing and a resolution of the Fiscal Cliff by the US, sovereign bond purchases by the European Central Bank and infrastructure investment by China) will be instituted. We simply have not reached the requisite level of desperation yet. That said, I remain disciplined. When RIO approached my 8% loss limit, I sold it, unhesitatingly. And I will go to 100% cash if and when I conclude that any element of the above described stimulus is not forthcoming. We need all three major economies to act in order to avert a world wide recession.
In the meantime, I remain in search of yield. As reported earlier, one of my favorite high yield sectors is "business" development companies ("BDC's"). These are pools of money that finance the sale or restructuring of privately held, middle market companies through senior loans, mezzanine financing and equity investments. BDC's have been very active over the past few years as commercial banks have shied away from financing middle market transactions. The king of this sector is Ares Capital (ARCC) which just last week launched a secondary offering of its stock. These events are always good buying opportunities, but if you want to take advantage of them you "can't clown around". I didn't "play around" but "got down to business" and grabbed some shares at a very attractive price. I also loaded up on FGB, a closed end fund comprised of the shares of several high quality BDC's, the price of which became attractive after it went ex-dividend this week.
Also, for those in hunt of yield in the oil and gas exploration and development space, take a look at Vanguard Natural Resources (VNR), a smaller version of Linn Energy which like LINE employs a smart hedging strategy, but, even better than LINE, pays an 8+% annual dividend on a monthly basis.
I bought some AAPL stock on a pullback on Tuesday. By any measure, Apple is a very cheap stock even at my entry point of $657. I rode AAPL from $427 to $636 earlier this year. We will see what Friday's patent verdict and the upcoming debut of the I-phone 5 bring.
No doubt about it, this was an anxious week. And I am very mindful of Bonnie Tyler's advice about "Heartaches". Don't let them hit you "when it's too late"; don't let them "hit you when you're down". If I am wrong about the stimulus, I will exit. Such an exit will undoubtedly cause me heartache, but it will be assuaged by some profits, I assure you.
Saturday, August 18, 2012
August 18, 2012 Leverage
Risk/Reward Vol. 132
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"All quiet on the Western Front, nobody saw/A youth asleep in the foreign soil, planted by the war
Feel the pulse of human blood pouring forth/See the stems of Europe bend under force."---lyrics from "All Quiet on the Western Front" sung by Elton John
"My interest level is dropping/My interest level is dropping
I've heard all I want to/I don't want to hear anymore."---lyrics from "No Compassion" by the Talking Heads
"Betty's been down in the iron mine/Bringing home energy
Yeah, I'm goin' steady with Iron Ore Betty/And she's goin' steady with me."---lyrics from "Iron Ore Betty" by John Prine
With all of the Eurozone and most of Wall Street on holiday for the month of August (note how low the volume has been recently), "all is quiet on the Western Front". The Dow Jones Industrial Average stayed within a confined range all week and ended up 68 points. As a holder of high yielding securities, I very much like the tranquility. Indeed, I would have the stock market stay frozen where it is, indefinitely, while I collect my 7+% in dividends and interest. But, no one will be "asleep in the foreign soil" come September. Necessarily, the "stems of Europe will bend under the force" of sovereign debt. How they bend will dictate my future course of action.
Although the downward progression of the yield on 10 year Treasury notes has halted, it still rests at near historic lows---below 2%. The result is that every yield priced off that benchmark, most notably corporate bonds, is likewise at or near historic lows. As of Friday, the average yield on a 10 year, A-rated corporate bond was 2.73%---not nearly enough to support this old boy should he choose to retire. I need 6-7% to support my profligate ways. "I've heard all I want to" about the "interest level dropping". "I don't want to hear anymore". But what can one do?
As I have written previously, one must seek investments that take advantage of low interest rates---those that use leverage.
My favorite leverage plays are closed end funds. As I have explained in earlier editions, closed end funds invest in the securities of other companies much like their better known and better understood cousins mutual funds and exchange traded funds. Like these other two, closed end funds invest in securities in a manner consistent with their published guidelines (e.g. some invest in oil companies, others in preferred stocks, still others in corporate bonds, etc. ). What distinguishes closed end funds is that they do not redeem shares. One's ability to buy into or sell out of a closed end fund is wholly dependent on other shareholders' willingness to buy or sell shares. Thus, a key factor for me in choosing a closed end fund is the volume of trades per day or liquidity. Thankfully, most are sufficiently liquid that I can enter or exit on a heartbeat--just like any other stock. Another very important distinction between closed end funds and their cousins is that closed end funds can incur debt: that is, borrow money to buy stocks. Thus in times of low interest rates (like now), closed end funds can use leverage (here, the difference between the cost of borrowing and the return on the stock purchased) to enhance shareholder returns. I have used them to good advantage in achieving diversity and steady returns in preferred stocks (JPC), senior debt (JFR), real estate (RQI), commodity futures (CFD) and corporate debt (BPP). If you are interested, learn more at www.cefconnect.com .
Another way to achieve a decent return is to buy stocks that are currently out of favor. And nothing is more out of favor than "iron mining". As reported a few weeks ago, I bought Cliffs Natural Resources (CLF) after its disappointing quarterly report. It has rebounded somewhat, but more importantly it is paying me a "goin' steady" 6+% dividend while I wait for "Iron Ore Betty" (read; steel production) to rebound. In the same vein (no pun intended), this week I bought BHP Billiton (BHP), the world's largest iron miner, due to its excellent cash flow and its announced dedication to maintaining (and someday growing) its dividend (currently paying at 3.2%). Also out of favor are commercial mortgages. Commercial mortgages under various names ( cmbs, cre, cdo, etc.) were demonized in the wake of the 2008 real estate downturn when their holders (primarily banks) were required to "mark them to market" (write them down). Billions of dollars of these are coming due this year, and banks are looking to other institutions such as mortgage reits to take them out via refinancing. If properly underwritten, these securities can provide an excellent return. I like the preferred stock of Winthrop Realty Trust (WTR) and NorthStar Realty (NRFpA and NRFpB) in this space.
I close with a bit of trivia. Between 1979 and 1989, Jerry Harrison of the Talking Heads was our neighbor in Shorewood, WI. I only hope that the lyrics from their hit "Once in a Lifetime" do not prove prophetic in regard my current investing gambit.
"Into the blue again, after the money is gone.
Same as it ever was, same as it ever was".
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"All quiet on the Western Front, nobody saw/A youth asleep in the foreign soil, planted by the war
Feel the pulse of human blood pouring forth/See the stems of Europe bend under force."---lyrics from "All Quiet on the Western Front" sung by Elton John
"My interest level is dropping/My interest level is dropping
I've heard all I want to/I don't want to hear anymore."---lyrics from "No Compassion" by the Talking Heads
"Betty's been down in the iron mine/Bringing home energy
Yeah, I'm goin' steady with Iron Ore Betty/And she's goin' steady with me."---lyrics from "Iron Ore Betty" by John Prine
With all of the Eurozone and most of Wall Street on holiday for the month of August (note how low the volume has been recently), "all is quiet on the Western Front". The Dow Jones Industrial Average stayed within a confined range all week and ended up 68 points. As a holder of high yielding securities, I very much like the tranquility. Indeed, I would have the stock market stay frozen where it is, indefinitely, while I collect my 7+% in dividends and interest. But, no one will be "asleep in the foreign soil" come September. Necessarily, the "stems of Europe will bend under the force" of sovereign debt. How they bend will dictate my future course of action.
Although the downward progression of the yield on 10 year Treasury notes has halted, it still rests at near historic lows---below 2%. The result is that every yield priced off that benchmark, most notably corporate bonds, is likewise at or near historic lows. As of Friday, the average yield on a 10 year, A-rated corporate bond was 2.73%---not nearly enough to support this old boy should he choose to retire. I need 6-7% to support my profligate ways. "I've heard all I want to" about the "interest level dropping". "I don't want to hear anymore". But what can one do?
As I have written previously, one must seek investments that take advantage of low interest rates---those that use leverage.
My favorite leverage plays are closed end funds. As I have explained in earlier editions, closed end funds invest in the securities of other companies much like their better known and better understood cousins mutual funds and exchange traded funds. Like these other two, closed end funds invest in securities in a manner consistent with their published guidelines (e.g. some invest in oil companies, others in preferred stocks, still others in corporate bonds, etc. ). What distinguishes closed end funds is that they do not redeem shares. One's ability to buy into or sell out of a closed end fund is wholly dependent on other shareholders' willingness to buy or sell shares. Thus, a key factor for me in choosing a closed end fund is the volume of trades per day or liquidity. Thankfully, most are sufficiently liquid that I can enter or exit on a heartbeat--just like any other stock. Another very important distinction between closed end funds and their cousins is that closed end funds can incur debt: that is, borrow money to buy stocks. Thus in times of low interest rates (like now), closed end funds can use leverage (here, the difference between the cost of borrowing and the return on the stock purchased) to enhance shareholder returns. I have used them to good advantage in achieving diversity and steady returns in preferred stocks (JPC), senior debt (JFR), real estate (RQI), commodity futures (CFD) and corporate debt (BPP). If you are interested, learn more at www.cefconnect.com .
Another way to achieve a decent return is to buy stocks that are currently out of favor. And nothing is more out of favor than "iron mining". As reported a few weeks ago, I bought Cliffs Natural Resources (CLF) after its disappointing quarterly report. It has rebounded somewhat, but more importantly it is paying me a "goin' steady" 6+% dividend while I wait for "Iron Ore Betty" (read; steel production) to rebound. In the same vein (no pun intended), this week I bought BHP Billiton (BHP), the world's largest iron miner, due to its excellent cash flow and its announced dedication to maintaining (and someday growing) its dividend (currently paying at 3.2%). Also out of favor are commercial mortgages. Commercial mortgages under various names ( cmbs, cre, cdo, etc.) were demonized in the wake of the 2008 real estate downturn when their holders (primarily banks) were required to "mark them to market" (write them down). Billions of dollars of these are coming due this year, and banks are looking to other institutions such as mortgage reits to take them out via refinancing. If properly underwritten, these securities can provide an excellent return. I like the preferred stock of Winthrop Realty Trust (WTR) and NorthStar Realty (NRFpA and NRFpB) in this space.
I close with a bit of trivia. Between 1979 and 1989, Jerry Harrison of the Talking Heads was our neighbor in Shorewood, WI. I only hope that the lyrics from their hit "Once in a Lifetime" do not prove prophetic in regard my current investing gambit.
"Into the blue again, after the money is gone.
Same as it ever was, same as it ever was".
Saturday, August 11, 2012
August 11, 2012 Before and After
Risk/Reward Vol. 131
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"The sun's gonna shine in my backdoor someday
Just you wait and see, just you wait and see."---lyrics from "Wait and See" by Canned Heat
"His future's bright, my future's dim/And all the dreams we shared you share with him
See the difference between old and new/Before and after losing you."---lyrics from "Before and After" by Chad and Jeremy
"Bad news is come to town/He's walkin' three feet off the ground
He's ordering another round."---lyrics from "Bad News" by Neil Young
With no pronouncements from the world's central banks expected or received this week, the stock market putzed along "waiting." It seems all are hoping "to see" some "sunshine in the backdoor someday"---sunshine in the form of further stimulus from the US, China and the Eurozone. Market stability reigned with the Dow closing at 13208, up 112 points for the week. The S&P closed above the magical 1400 level. Refreshingly, stock fundamentals (not exogenous events) dictated price gains and losses.
As I discussed last week, I like to buy dividend paying stocks soon "after" they report disappointing news. Optimally, I like buying after I read the transcript of the earnings conference call (which usually occurs simultaneously with the earnings report and can be found at www.SeekingAlpha.com). The more detailed information there affords me a level of confidence; provided, of course. that the reasons for the disappointment are explained to my satisfaction. I used this technique this week to buy more ETP and AGNC on post earnings dips (although I had to double down on AGNC the second day after the report in order to effect an immediately profitable trade). Sometimes, not often, I gamble. I buy stocks "before" earnings are reported on a hunch that the earnings will exceed expectations. I shouldn't, I know---but sometimes I just can't resist. I did so a few weeks ago, buying Frontier Communications (FTR) in advance of its earnings announcement. This produced a homerun as FTR blew away expectations. I have enjoyed a 22% appreciation in just two weeks (not counting a whopping 9+% dividend!). So, I decided to employ the same technique to add to my holdings in Windstream (WIN) one of FTR's competitors in the telephone landline space; all the while hoping that I would "share the same dream". OUCH! The stock fell like a rock on the day WIN reported disappointing earnings. "Dim"wit! If only I had listened to Chad and Jeremy--be a buyer (or a boyfriend for that matter) AFTER heartbreaking news, and your "future will be bright." I don't mind owning WIN with its 10+% dividend. I just wish I had bought after the earnings report and not before.
On Thursday, China reported that its factory production had dropped to a three year low, and on Friday China reported disappointing export numbers. Ironically (but predictably), this "bad news" was favorably received by the markets, spurring speculation that now China must surely "order another round" of stimulus, like the $600billion infrastructure improvement binge it initiated in response to the worldwide recession in 2008-2009. That exercise superheated China's economy, causing significant inflation (especially in real estate); so I don't expect stimulation at that level. But, I do expect some significant spending---and that is good news for commodity/mining, industrial and oil stocks.
So far, my thesis has worked. I have profited (WIN notwithstanding) from my belief that the world's major economies will do whatever is necessary to avert another recession. Obviously, other market participants concur. I remain chary, however. I am not like Canned Heat. I don't believe that we are living in a time or place "where the water tastes like wine" or where you "can jump in the water and stay drunk all the time." (from "Going Up The Country"). Someday, this stimulus induced market buzz will end, and I may have to exit---yet again.
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"The sun's gonna shine in my backdoor someday
Just you wait and see, just you wait and see."---lyrics from "Wait and See" by Canned Heat
"His future's bright, my future's dim/And all the dreams we shared you share with him
See the difference between old and new/Before and after losing you."---lyrics from "Before and After" by Chad and Jeremy
"Bad news is come to town/He's walkin' three feet off the ground
He's ordering another round."---lyrics from "Bad News" by Neil Young
With no pronouncements from the world's central banks expected or received this week, the stock market putzed along "waiting." It seems all are hoping "to see" some "sunshine in the backdoor someday"---sunshine in the form of further stimulus from the US, China and the Eurozone. Market stability reigned with the Dow closing at 13208, up 112 points for the week. The S&P closed above the magical 1400 level. Refreshingly, stock fundamentals (not exogenous events) dictated price gains and losses.
As I discussed last week, I like to buy dividend paying stocks soon "after" they report disappointing news. Optimally, I like buying after I read the transcript of the earnings conference call (which usually occurs simultaneously with the earnings report and can be found at www.SeekingAlpha.com). The more detailed information there affords me a level of confidence; provided, of course. that the reasons for the disappointment are explained to my satisfaction. I used this technique this week to buy more ETP and AGNC on post earnings dips (although I had to double down on AGNC the second day after the report in order to effect an immediately profitable trade). Sometimes, not often, I gamble. I buy stocks "before" earnings are reported on a hunch that the earnings will exceed expectations. I shouldn't, I know---but sometimes I just can't resist. I did so a few weeks ago, buying Frontier Communications (FTR) in advance of its earnings announcement. This produced a homerun as FTR blew away expectations. I have enjoyed a 22% appreciation in just two weeks (not counting a whopping 9+% dividend!). So, I decided to employ the same technique to add to my holdings in Windstream (WIN) one of FTR's competitors in the telephone landline space; all the while hoping that I would "share the same dream". OUCH! The stock fell like a rock on the day WIN reported disappointing earnings. "Dim"wit! If only I had listened to Chad and Jeremy--be a buyer (or a boyfriend for that matter) AFTER heartbreaking news, and your "future will be bright." I don't mind owning WIN with its 10+% dividend. I just wish I had bought after the earnings report and not before.
On Thursday, China reported that its factory production had dropped to a three year low, and on Friday China reported disappointing export numbers. Ironically (but predictably), this "bad news" was favorably received by the markets, spurring speculation that now China must surely "order another round" of stimulus, like the $600billion infrastructure improvement binge it initiated in response to the worldwide recession in 2008-2009. That exercise superheated China's economy, causing significant inflation (especially in real estate); so I don't expect stimulation at that level. But, I do expect some significant spending---and that is good news for commodity/mining, industrial and oil stocks.
So far, my thesis has worked. I have profited (WIN notwithstanding) from my belief that the world's major economies will do whatever is necessary to avert another recession. Obviously, other market participants concur. I remain chary, however. I am not like Canned Heat. I don't believe that we are living in a time or place "where the water tastes like wine" or where you "can jump in the water and stay drunk all the time." (from "Going Up The Country"). Someday, this stimulus induced market buzz will end, and I may have to exit---yet again.
Saturday, August 4, 2012
August 4, 2012 Anticipation
Risk/Reward Vol. 130
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"Anticipation, anticipation is makin' me late
Is keepin' me waitin'"---lyrics from "Anticipation" by Carly Simon
"I count the spiders on the wall/I count the cobwebs in the hall
I count the candles on the shelf/When I'm alone, I count myself"---lyrics from "The Counting Song" by the Count (Sesame Street)
"I've lived long enough to have learned/The closer you get to the fire the more you get burned
But that won't happen to us/Because it's always been a matter of trust."---lyrics from "A Matter of Trust" by Billy Joel
In light of recent pronouncements from both the Federal Reserve and the European Central Bank (ECB) (see last week's quotes), the world's stock markets were "anticipating" action when each of those central banks had meetings this week: quantitative easing (QE3) by the Fed and sovereign debt purchases by the ECB. Neither occurred, with both "keepin' us waitin'" until their meetings in September before we see any such movement, if then. The markets' reactions were not surprising with the Dow Jones Industrial Average dropping 32 points on Wednesday following the Fed meeting and 97 points on Thursday following the ECB meeting. What WAS surprising was how shallow the drops were and how quickly the markets recovered on Friday with the Dow gaining 217 points ostensibly on a modest jobs report. I submit that the rebound was due more to the belief that the world's largest economies (especially China) and their central banks will do everything in their power--be it stimulus spending or monetary easing-- to avert a recession. It is this belief that provides me the impetus to continue to invest in stocks.
As the earnings season winds down, it has become apparent that the U. S. economy is weakening--or is it? Although more than half of the reporting companies have missed expected revenues and profits, one must remember that accounting is not synonymous with "counting". Indeed, accounting is more an art than a science. Admittedly, Count, a spider is a spider, but is a spider egg a spider or work in process? Is an unused cobweb an asset or has it outlived its useful life and thus should it be written down (not counted)? Why only count the candles on the shelf---how about the ones you just ordered or have deferred ordering? Frankly, when others are reporting disappointing numbers, sometimes it makes sense for a management team to use the cover of a generally bad quarter to report all of the skeletons in the closet. Whatever the reason, I like when dividend paying companies "disappoint" because invariably the market overreacts thus providing the opportunity to buy what Cramer calls an "accidental high yielder". (Remember, the lower the stock price the higher the yield.) I bought the following high yielders on disappointing news this week: CLF, TOT, TAC, MCY, HBC, EXC.
One hot sector so far this year has been and continues to be real estate investment "trusts" (REITs), especially those that invest in mortgages and other forms of real estate financing. The availability of cheap money thanks to historic low interest rates and the demand for residential rental property has caused a flurry of acquisitions and refinancings. Literally every week there are several new stock issuances as REITs continuously raise capital to fund these activities. Indeed, some commentators are warning that the sector is so hot, one could "get burned". As a consequence, I like buying the preferred stock of these entities as opposed to their common stock. Both pay excellent dividends, but the preferred dividend must be paid in full before any common stock dividend is paid. These are good companies, and every one of their investors believes that disaster "won't happen to us." But, I like the downside protection afforded by a preferred position, nevertheless. This week I bought NRFpB, ARIpA and IVRpA.
As stated repeatedly over the past few weeks, my thesis is simple: if all of the world's major economies and central banks are willing to borrow and spend (read, stimulus), to employ monetary easing and to do whatever else is necessary to avert a recession, then growth, albeit temporary, will occur. "I've lived long enough to have learned" that the long term impact will be rampant inflation, but that could take months, even years to unfold. In the interim, I want to participate, via dividends and modest appreciation, for as long as it lasts. I am not a pollyanna, but as Billy Joel sings "...the good ole days weren't always good, and tomorrow ain't as bad as it seems."
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"Anticipation, anticipation is makin' me late
Is keepin' me waitin'"---lyrics from "Anticipation" by Carly Simon
"I count the spiders on the wall/I count the cobwebs in the hall
I count the candles on the shelf/When I'm alone, I count myself"---lyrics from "The Counting Song" by the Count (Sesame Street)
"I've lived long enough to have learned/The closer you get to the fire the more you get burned
But that won't happen to us/Because it's always been a matter of trust."---lyrics from "A Matter of Trust" by Billy Joel
In light of recent pronouncements from both the Federal Reserve and the European Central Bank (ECB) (see last week's quotes), the world's stock markets were "anticipating" action when each of those central banks had meetings this week: quantitative easing (QE3) by the Fed and sovereign debt purchases by the ECB. Neither occurred, with both "keepin' us waitin'" until their meetings in September before we see any such movement, if then. The markets' reactions were not surprising with the Dow Jones Industrial Average dropping 32 points on Wednesday following the Fed meeting and 97 points on Thursday following the ECB meeting. What WAS surprising was how shallow the drops were and how quickly the markets recovered on Friday with the Dow gaining 217 points ostensibly on a modest jobs report. I submit that the rebound was due more to the belief that the world's largest economies (especially China) and their central banks will do everything in their power--be it stimulus spending or monetary easing-- to avert a recession. It is this belief that provides me the impetus to continue to invest in stocks.
As the earnings season winds down, it has become apparent that the U. S. economy is weakening--or is it? Although more than half of the reporting companies have missed expected revenues and profits, one must remember that accounting is not synonymous with "counting". Indeed, accounting is more an art than a science. Admittedly, Count, a spider is a spider, but is a spider egg a spider or work in process? Is an unused cobweb an asset or has it outlived its useful life and thus should it be written down (not counted)? Why only count the candles on the shelf---how about the ones you just ordered or have deferred ordering? Frankly, when others are reporting disappointing numbers, sometimes it makes sense for a management team to use the cover of a generally bad quarter to report all of the skeletons in the closet. Whatever the reason, I like when dividend paying companies "disappoint" because invariably the market overreacts thus providing the opportunity to buy what Cramer calls an "accidental high yielder". (Remember, the lower the stock price the higher the yield.) I bought the following high yielders on disappointing news this week: CLF, TOT, TAC, MCY, HBC, EXC.
One hot sector so far this year has been and continues to be real estate investment "trusts" (REITs), especially those that invest in mortgages and other forms of real estate financing. The availability of cheap money thanks to historic low interest rates and the demand for residential rental property has caused a flurry of acquisitions and refinancings. Literally every week there are several new stock issuances as REITs continuously raise capital to fund these activities. Indeed, some commentators are warning that the sector is so hot, one could "get burned". As a consequence, I like buying the preferred stock of these entities as opposed to their common stock. Both pay excellent dividends, but the preferred dividend must be paid in full before any common stock dividend is paid. These are good companies, and every one of their investors believes that disaster "won't happen to us." But, I like the downside protection afforded by a preferred position, nevertheless. This week I bought NRFpB, ARIpA and IVRpA.
As stated repeatedly over the past few weeks, my thesis is simple: if all of the world's major economies and central banks are willing to borrow and spend (read, stimulus), to employ monetary easing and to do whatever else is necessary to avert a recession, then growth, albeit temporary, will occur. "I've lived long enough to have learned" that the long term impact will be rampant inflation, but that could take months, even years to unfold. In the interim, I want to participate, via dividends and modest appreciation, for as long as it lasts. I am not a pollyanna, but as Billy Joel sings "...the good ole days weren't always good, and tomorrow ain't as bad as it seems."
Saturday, July 28, 2012
July 28, 2012 Stimulation
Risk/Reward Vol..129
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. To the extent the size of sovereign premia (borrowing costs) hamper the functioning of the monetary policy transmission channels, this comes within our mandate"---quote of Mario Draghi, head of the European Central Bank 7/26/12
"We haven't really come to a specific choice at this point, but we are looking for ways to address the weakness in the economy should more action be needed to promote a sustained recovery in the labor market."---quote Benjamin Bernanke, chair of the Federal Reserve 7/18/12
"China's employment will become more complex and more severe. The task of promoting full employment will very heavy and we must make greater efforts to achieve it."---quote Wen Jiabao, Chinese Premier 7/18/12
This past week I met with subscribers at a golf outing in Indianapolis and over dinner in Minneapolis. At both functions, I was asked why I was so optimistic about the stock market--me, the guy who bailed completely in July, 2011 and again in mid-May, 2012. I directed them to Vol. 127 (www.riskrewardblog.blogspot.com) wherein I stated: "...faced with overwhelming negativity the world's economic and political leaders remain generally and genuinely concerned about a worldwide recession. There is a real sense of urgency to stimulate economies..."
This concern has been on display for the past two weeks, and never more so than in the past few days. On Monday and Tuesday of this week, the Dow Jones Industrial Average fell 100 points on each day on news that Spain's sovereign borrowing costs were exceeding 7%, a dangerous level which makes access to the public bond markets virtually impossible. On Wednesday, the Spanish finance minister was in Berlin meeting with his German counterpart who refrained from uttering his normal accusations. More importantly, on Thursday, Mario Draghi, the head of the ECB, made the above pronouncement---the most direct and unambiguous statement yet that the ECB would do anything and everything (presumably even purchasing bonds directly from sovereigns such a Spain) to preserve the Eurozone. The impact was immediate and enormous. The DJIA closed up 213 points on Thursday and 188 on Friday as support for the statement came from the ever contrary Chancellor Merkel.
On the home front, last week Ben Bernanke made the above quoted statement to Congress, signaling that the Fed, too, would soon be in the stimulus mode. Unfortunately, not even Uncle Ben can remedy the Fiscal Cliff (end of the Bush tax cuts, expiration of the extended unemployment benefits and imposition of across the board spending cuts) which occurs on December 31, 2012. This Cliff will have a significant, negative impact on the US economy. Only Congress and the President can fix it, and they will do nothing until after the election. Strange, is it not. Just like last July during the debt extension "chicken" game, the most irresponsible leaders are the Americans!
Not so the Chinese. Indeed, the statement from Premier Wen above has made me even more optimistic. Here is why:
1) Contrary to popular belief, China is a very unstable country. Indeed, in 2011, there were more than 150,000 (that's not a typo fans) significant civil disturbances in China. Recall, if you will, the revolt in the city of Wukan where the citizenry rioted and violently overthrew the local government which had corruptly sold community pastures to land speculators. The grand bargain in China is that peace will be maintained so long as everyone is employed. Thus the importance of the above statement.
2) It is extremely important that there be no major civil unrest this year. In October, the reins of the country will pass out of Premier Wen's hands. Transitions are always dicey in a totalitarian regime, but especially so in China (notice the recent arrest of the Mayor of Chunking's wife).
3) In 2008-9, when the Chinese export-based economy was threatened by the world wide recession, the central government embarked on a massive domestic stimulus program, promising improved housing and infrastructure. The result was a superheated economy and a real estate bubble which caused China to decelerate its rate of growth in 2011---a deceleration that has now gone too far. Remember, however, that it was this massive internal stimulus in 2009-2010 that drove a huge run in commodities (copper, iron ore, etc.). In 2010, China consumed 20% of the world's non-renewable energy, 23% of the world's agricultural production and 40% of all base metals. The 2009-10 Chinese stimulus also helped propel the profits of those US companies with a major presence in China (Caterpillar, McDonald's, Yum, GM, P&G, etc.)
4) Politically mandated to promote growth and sitting on a huge amount of foreign reserves, China is once again prepared to stimulate its economy. Indeed, on Friday of this week, the city of Changsha (7million) announced a $130billion stimulus plan which includes a new airport, road construction and improved housing.
With the ECB speaking with real resolve (let's hope Draghi can follow through), with Uncle Ben ready to pull the QE trigger and with China needing to keep its masses employed, I see a stable if not increasing stock market. During the market swoon early this week, I bought more COP, LINE, WIN, ETP, SDRL, BACpL, EXC, NYB, AFC and AHTpD. In the words of my favorite stock picker, BOOYAH!
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. To the extent the size of sovereign premia (borrowing costs) hamper the functioning of the monetary policy transmission channels, this comes within our mandate"---quote of Mario Draghi, head of the European Central Bank 7/26/12
"We haven't really come to a specific choice at this point, but we are looking for ways to address the weakness in the economy should more action be needed to promote a sustained recovery in the labor market."---quote Benjamin Bernanke, chair of the Federal Reserve 7/18/12
"China's employment will become more complex and more severe. The task of promoting full employment will very heavy and we must make greater efforts to achieve it."---quote Wen Jiabao, Chinese Premier 7/18/12
This past week I met with subscribers at a golf outing in Indianapolis and over dinner in Minneapolis. At both functions, I was asked why I was so optimistic about the stock market--me, the guy who bailed completely in July, 2011 and again in mid-May, 2012. I directed them to Vol. 127 (www.riskrewardblog.blogspot.com) wherein I stated: "...faced with overwhelming negativity the world's economic and political leaders remain generally and genuinely concerned about a worldwide recession. There is a real sense of urgency to stimulate economies..."
This concern has been on display for the past two weeks, and never more so than in the past few days. On Monday and Tuesday of this week, the Dow Jones Industrial Average fell 100 points on each day on news that Spain's sovereign borrowing costs were exceeding 7%, a dangerous level which makes access to the public bond markets virtually impossible. On Wednesday, the Spanish finance minister was in Berlin meeting with his German counterpart who refrained from uttering his normal accusations. More importantly, on Thursday, Mario Draghi, the head of the ECB, made the above pronouncement---the most direct and unambiguous statement yet that the ECB would do anything and everything (presumably even purchasing bonds directly from sovereigns such a Spain) to preserve the Eurozone. The impact was immediate and enormous. The DJIA closed up 213 points on Thursday and 188 on Friday as support for the statement came from the ever contrary Chancellor Merkel.
On the home front, last week Ben Bernanke made the above quoted statement to Congress, signaling that the Fed, too, would soon be in the stimulus mode. Unfortunately, not even Uncle Ben can remedy the Fiscal Cliff (end of the Bush tax cuts, expiration of the extended unemployment benefits and imposition of across the board spending cuts) which occurs on December 31, 2012. This Cliff will have a significant, negative impact on the US economy. Only Congress and the President can fix it, and they will do nothing until after the election. Strange, is it not. Just like last July during the debt extension "chicken" game, the most irresponsible leaders are the Americans!
Not so the Chinese. Indeed, the statement from Premier Wen above has made me even more optimistic. Here is why:
1) Contrary to popular belief, China is a very unstable country. Indeed, in 2011, there were more than 150,000 (that's not a typo fans) significant civil disturbances in China. Recall, if you will, the revolt in the city of Wukan where the citizenry rioted and violently overthrew the local government which had corruptly sold community pastures to land speculators. The grand bargain in China is that peace will be maintained so long as everyone is employed. Thus the importance of the above statement.
2) It is extremely important that there be no major civil unrest this year. In October, the reins of the country will pass out of Premier Wen's hands. Transitions are always dicey in a totalitarian regime, but especially so in China (notice the recent arrest of the Mayor of Chunking's wife).
3) In 2008-9, when the Chinese export-based economy was threatened by the world wide recession, the central government embarked on a massive domestic stimulus program, promising improved housing and infrastructure. The result was a superheated economy and a real estate bubble which caused China to decelerate its rate of growth in 2011---a deceleration that has now gone too far. Remember, however, that it was this massive internal stimulus in 2009-2010 that drove a huge run in commodities (copper, iron ore, etc.). In 2010, China consumed 20% of the world's non-renewable energy, 23% of the world's agricultural production and 40% of all base metals. The 2009-10 Chinese stimulus also helped propel the profits of those US companies with a major presence in China (Caterpillar, McDonald's, Yum, GM, P&G, etc.)
4) Politically mandated to promote growth and sitting on a huge amount of foreign reserves, China is once again prepared to stimulate its economy. Indeed, on Friday of this week, the city of Changsha (7million) announced a $130billion stimulus plan which includes a new airport, road construction and improved housing.
With the ECB speaking with real resolve (let's hope Draghi can follow through), with Uncle Ben ready to pull the QE trigger and with China needing to keep its masses employed, I see a stable if not increasing stock market. During the market swoon early this week, I bought more COP, LINE, WIN, ETP, SDRL, BACpL, EXC, NYB, AFC and AHTpD. In the words of my favorite stock picker, BOOYAH!
Saturday, July 21, 2012
July 21, 2012 Hungry Like the Wolf
Risk/Reward Vol. 128
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION UPON INVESTING. RELY ON NOTHING STATED HEREIN.
"I'm sick and tired of repudiation/Where upon your orchestration
Leads to endless complication/And causes great consternation"---lyrics from "Stability" by Blondie
"Burning the ground, I break from the crowd/I'm on the hunt, I'm after you
I smell like I sound, I'm lost and I'm found/And I'm hungry like the wolf"---lyrics from "Hungry Like the Wolf" by Duran Duran
"If it takes a lot to keep it going/If it takes a lot to keep it real
Take some time for yourself/And learn to yield"---lyrics from "Yield" by The Indigo Girls
So far the earnings season has been a mixed bag; not great, but slightly better than expected; no huge surprises up or down. As a consequence, the stock market has been stable (the Dow was up 50 points for the week), with stock prices moving on individual fundamentals rather than en masse; "orchestrated" in response to some extragenous event (e.g. the Eurocrisis). Such "orchestration", known in the trade as correlation, "leads to endless complication", and "causes great consternation" to simple folk like me who just want a decent return on investment. Frankly, "I'm sick and tired" of correlation, and I love the recent spate of "Stability".
Since my June re-entry, I have noticed how "hungry" yield seekers have become. In times past, two of my favorite providers of yield have been preferred stocks and exchange traded debt both of which are reported each day at http://online.wsj.com/mdc/public/page/2_3024-Preferreds.html?mod=mdc_h_usshl#C . Open this site, and look at the far right column. Notice the incredible returns achieved so far this year. I captured much of those profits before my May exit, but these stocks have continued to appreciate-- some even above their redemption (call) price of $25. (Read about redemption prices at QuantumOnLine). Yield seekers clearly are "on the hunt." "Hungry like the wolf". Easy pickin's like the vast array of preferred shares of BankAmerica, Citigroup, JPMorgan, etc. have become too expensive for the risk adjusted return (although if you are not afraid of leverage, 8% can be achieved in this space via JPC, a closed end fund). This time around, I've had to "burn new ground" and "break from the crowd".
Yield hunters have also decimated other formerly fertile grounds. Safe, high dividend paying sectors such as wireless telcoms (VZ, T, VOD--although I bought all three at end of week dips), utilities (although EXC still presents some upward potential) and tobacco (RAI, MO) have become too expensive for the return. In order to achieve 6% or higher dividends, one must move up the risk ladder to companies like landline telcoms (WIN, FTR and CTL). Clearly, the expiration of the Bush tax cuts at year end which will result in dividends being taxed as high as 43.4% (currently 15%), has not yet dissuaded investors. Perhaps it's because so many stocks are held in tax deferred accounts (eg.401k's), or perhaps it's because there are no alternative yield providers.
My frustrations notwithstanding, I still seek yield. Believe me, "it takes a pile of dough to keep my lifestyle going". I will need a lot of passive income if I intend to "take some time for myself" in the future. I have had to "learn how (to find) yield" in places other than traditional haunts.
And I have. One can still find refuge in real estate investment trusts ("reits"), but only in the less traditonal, higher risk arenas such as agency reits (AGNC, ARR) and commercial mortgage reits (LSE, CLNY, RAS, SFI, NRF). In this space, I like the preferred issues of reits that pay high common dividends; for example CLNYpA, NRFpB and ARRpA. RQI is a closed end fund that holds many of these stocks, provides diversity and yields a decent return.
Oil and gas, especially oil trusts and master limited partnerships, remain attractive as well. I keep sayin' it, 'cause I belief it! Natural gas will be a big winner. It is clean and plentiful, dominates in the home heating sector and is the only real alternative to coal (for electrical power generation) and oil (for over the road vehicles). It is up nearly 50% since this spring ($2 to nearly $3/mmBTU), and you do not have to be a Whitewalker to know that "Winter is coming" (note the shout out to fellow "Game of Thrones" fans). Pick whatever pipeline company you prefer or buy AMLP, an etf that holds stock in all of them, but do get some exposure to the nat gas tranportation and storage sector. As for a vertically integrated play, I still like Linn Energy (LINE). Wall Street is not enamored with its recent acquisitions, but the Street's dislike simply provides a better buying opportunity.
Congratulations to those that had the foresight to buy the etf CORN which is up 30% this month as the drought continues.
Here is a list of my purchases this week: RBSpT, CFD, CTL, WIN, FTR, EXC, BACpL, AFC, NRFpB, ARRpA, JPC, JFR, PYG, RQI, AMLP, FGB, ARR, ELSpA, CLNYpA, MFO, T, VZ, VOD.
Like Le Petomane, I make no secret of my love of natural gas. I hope that my attraction proves more profitable than what Deborah Harry (Blondie) experienced:
"Once I had a love and it was a gas/Soon turned out had a heart of glass"
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION UPON INVESTING. RELY ON NOTHING STATED HEREIN.
"I'm sick and tired of repudiation/Where upon your orchestration
Leads to endless complication/And causes great consternation"---lyrics from "Stability" by Blondie
"Burning the ground, I break from the crowd/I'm on the hunt, I'm after you
I smell like I sound, I'm lost and I'm found/And I'm hungry like the wolf"---lyrics from "Hungry Like the Wolf" by Duran Duran
"If it takes a lot to keep it going/If it takes a lot to keep it real
Take some time for yourself/And learn to yield"---lyrics from "Yield" by The Indigo Girls
So far the earnings season has been a mixed bag; not great, but slightly better than expected; no huge surprises up or down. As a consequence, the stock market has been stable (the Dow was up 50 points for the week), with stock prices moving on individual fundamentals rather than en masse; "orchestrated" in response to some extragenous event (e.g. the Eurocrisis). Such "orchestration", known in the trade as correlation, "leads to endless complication", and "causes great consternation" to simple folk like me who just want a decent return on investment. Frankly, "I'm sick and tired" of correlation, and I love the recent spate of "Stability".
Since my June re-entry, I have noticed how "hungry" yield seekers have become. In times past, two of my favorite providers of yield have been preferred stocks and exchange traded debt both of which are reported each day at http://online.wsj.com/mdc/public/page/2_3024-Preferreds.html?mod=mdc_h_usshl#C . Open this site, and look at the far right column. Notice the incredible returns achieved so far this year. I captured much of those profits before my May exit, but these stocks have continued to appreciate-- some even above their redemption (call) price of $25. (Read about redemption prices at QuantumOnLine). Yield seekers clearly are "on the hunt." "Hungry like the wolf". Easy pickin's like the vast array of preferred shares of BankAmerica, Citigroup, JPMorgan, etc. have become too expensive for the risk adjusted return (although if you are not afraid of leverage, 8% can be achieved in this space via JPC, a closed end fund). This time around, I've had to "burn new ground" and "break from the crowd".
Yield hunters have also decimated other formerly fertile grounds. Safe, high dividend paying sectors such as wireless telcoms (VZ, T, VOD--although I bought all three at end of week dips), utilities (although EXC still presents some upward potential) and tobacco (RAI, MO) have become too expensive for the return. In order to achieve 6% or higher dividends, one must move up the risk ladder to companies like landline telcoms (WIN, FTR and CTL). Clearly, the expiration of the Bush tax cuts at year end which will result in dividends being taxed as high as 43.4% (currently 15%), has not yet dissuaded investors. Perhaps it's because so many stocks are held in tax deferred accounts (eg.401k's), or perhaps it's because there are no alternative yield providers.
My frustrations notwithstanding, I still seek yield. Believe me, "it takes a pile of dough to keep my lifestyle going". I will need a lot of passive income if I intend to "take some time for myself" in the future. I have had to "learn how (to find) yield" in places other than traditional haunts.
And I have. One can still find refuge in real estate investment trusts ("reits"), but only in the less traditonal, higher risk arenas such as agency reits (AGNC, ARR) and commercial mortgage reits (LSE, CLNY, RAS, SFI, NRF). In this space, I like the preferred issues of reits that pay high common dividends; for example CLNYpA, NRFpB and ARRpA. RQI is a closed end fund that holds many of these stocks, provides diversity and yields a decent return.
Oil and gas, especially oil trusts and master limited partnerships, remain attractive as well. I keep sayin' it, 'cause I belief it! Natural gas will be a big winner. It is clean and plentiful, dominates in the home heating sector and is the only real alternative to coal (for electrical power generation) and oil (for over the road vehicles). It is up nearly 50% since this spring ($2 to nearly $3/mmBTU), and you do not have to be a Whitewalker to know that "Winter is coming" (note the shout out to fellow "Game of Thrones" fans). Pick whatever pipeline company you prefer or buy AMLP, an etf that holds stock in all of them, but do get some exposure to the nat gas tranportation and storage sector. As for a vertically integrated play, I still like Linn Energy (LINE). Wall Street is not enamored with its recent acquisitions, but the Street's dislike simply provides a better buying opportunity.
Congratulations to those that had the foresight to buy the etf CORN which is up 30% this month as the drought continues.
Here is a list of my purchases this week: RBSpT, CFD, CTL, WIN, FTR, EXC, BACpL, AFC, NRFpB, ARRpA, JPC, JFR, PYG, RQI, AMLP, FGB, ARR, ELSpA, CLNYpA, MFO, T, VZ, VOD.
Like Le Petomane, I make no secret of my love of natural gas. I hope that my attraction proves more profitable than what Deborah Harry (Blondie) experienced:
"Once I had a love and it was a gas/Soon turned out had a heart of glass"
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